Alumina (AWC) Share Trading Update

Submitted by Craig Strzelecki on 22 February, 2007 - 22:58

Alumina (AWC) have a downgraded Neutral 2 share trading recommendation and a price target of $7.50 per share from analyst UBS. The analysts presume the publicly listed company is maintaining a positive outlook, but trading at a premium to its peers. They have downgraded Alumina from a Buy 2 rating to Neutral 2 largely on price appreciation (the stock is up 17% since the beginning of the year). However, they remain positive on the outlook for AWC and are increasing their price target to $7.50 per share in line with their 12-month NPV. According to IRESS, consensus calls for NPAT of $573m in CY 07. The analyst project $702m in CY07, up 23% from $569m in CY 06. Their CY 07 forecast is within management’s sensitivity guidance using US$1.30/lb for aluminium in 2007 (current price is US$1.26/lb). They remain positive on aluminium underpinned by strong Chinese demand, and slow capacity growth due to limited power availability. They believe that the key risk now appears to be high valuation compared to peers: Alumina trades for 11.9x CY07E EPS and 10.0x CY08E EPS. This compares to Alcan at 8.7x CY 07E EPS and 7.5x CY 08E EPS. Similarly, Alcoa trades for 10.2x CY07E EPS and 9.1x CY08E EPS. Additionally, BHP and RIO trade for only 9.9x FY07E EPS and 8.1x FY07E EPS, respectively suggesting that there could be value in resources away from AWC. Their price target is $7.50 based on our 1 yr NPV. News flow over the next 3 months which could move the stock includes earnings upgrades, the off-market buyback and further upwards momentum in the aluminium price.

Alumina Limited is listed on the Australian Stock Exchange (ASX) under stock code AWC. You can view their investor website here. AWC was listed on the ASX on 31 October, 1961. Donald Marshall Morley is the chairman for Alumina and John Marlay the CEO. The company as a joint venture interest in bauxite mining, alumina refining, alumina based chemicals and aluminium smelting via its 40 per cent interest in the series of operating entities of Alcoa World Alumina & Chemicals. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade AWC. Check your charts and good luck with your share trading!

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