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Elkem (Buy, TP: NOK25.00) - Silicone pricing taking another hit

Silicone prices in China are down to RMB15,000/mt, probably close to break-even for the marginal producer. Due to lower pricing and end-market demand, we have lowered our 2020e EBITDA by 12%. We are broadly in line with consensus for Q1 and we retain our BUY with a new NOK25 (30) target price.

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Elkem (Buy, TP: NOK30.00) - Q4 a non-event

Q4 EBITDA was broadly in line with estimates, but touched a 2-year, cyclical low. Despite management citing uncertainty about the coronavirus impact in Q1, it guided slight market improvements in 2020, including better FeSi pricing and stable specialty silicone pricing YOY. We reiterate our BUY and NOK30 target price as the stock is still trading at a deep discount to our SOTP.

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Elkem (Buy, TP: NOK30.00) - Set for a weak Q4

We expect weak Q4 EBITDA of NOK512m, down 20% QOQ, primarily due to Silicones (lower volumes and prices – partially as a result of China’s anniversary celebrations – and production issues). We have cut our 2020e EBITDA by 4% but are encouraged by the recent recovery in DMC, Si and FeSi prices. We reiterate our BUY recommendation and NOK30 target price.

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Elkem (Buy, TP: NOK30.00) - A mixed ESG bag

In this report we examine Elkem’s ESG profile. We conclude the impact on its business model is mixed with positives from higher demand from EVs and battery grade graphite, and as its Silicones products could avoid over 14mmt of emissions p.a. The main negative is that its value chain from quartz to silicones has a large environmental footprint including coal, D4, and D5, and consumer perception towards silicones appears mixed. We reiterate our BUY and NOK30 target price.

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Elkem (Buy, TP: NOK30.00) - Trading at a 50% discount to our SOTP

Elkem reported a cyclically low EBITDA but slightly above expectations. The outlook comments were also fairly in line with our estimates, which we have lowered c2–3% for 2019–2021 EBITDA due to Carbon. Elkem believes significant capacity cuts upstream (e.g. Ferroglobe) should support upstream pricing, offering support to our estimate of an c11% FCF yield for 2020. We reiterate our BUY and NOK30 target price.

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Elkem (Buy, TP: NOK30.00) - Guidance looks right (for once)

Guidance looks right (for once) We are in line with consensus and guidance ahead of Q3 results expecting EBITDA of NOK655m, broadly flat QOQ. We have lowered our 2020−2021e EBITDA by 3−7% due to lower silicon metal price assumptions. We reiterate our BUY and NOK30 target price due to an attractive valuation with the shares trading at 3.7x our normalised EBITDA.

Elkem (Buy, TP: NOK30.00) - Upstream pricing at 2009 levels

Our QOQ improvement in Q3e from Silicones has been offset by upstream pricing dropping to 2009 levels. This is clearly not sustainable longer-term in our view, and we have cut our 2019e EBITDA by 12% to reflect this. Also, we have cut our 2020e EBITDA by 5%, but we stick to our BUY with a new NOK30 (32) target price as Elkem is trading at a deep discount to our SOTP.

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Elkem (Buy, TP: NOK32.00) -

Elkem (ELK NO, Buy) - (16 pages)