Alumina (AWC) Recommendation

Submitted by Craig Strzelecki on 13 July, 2007 - 19:00

Alumina (AWC) has a Neutral 2 recommendation and a stock price target of $8.20 from Australian equities market analyst UBS. Rio Tinto today announced an all cash bid of US$101ps for Alcan, valuing Alcan at US$38.1bn. The implied multiple for this transaction based on consensus earnings is 16.3x (07e) and 16.7x (08e) earnings, pre-synergies (according to Rio) of US$600m after tax. Press articles over recent weeks have talked about a bid for Alcan by Rio Tinto and for Alcoa by BHP Billiton. With one leg of the double now underway, it is likely in their view that the market will focus on the probability of a bid for Alcoa and AWC by BHP Billiton., or perhaps a bid for AWC by Alcoa given it may be unsuccessful in its bid for Alcan. However, they believe the only logical owner for AWC is its joint-venture partner in AWAC, thus it may not attract as high a multiple. Based on consensus earnings of 49cps in 2008e and the Rio-Alcan multiple of 16.7x, we derive a value for AWC of $8.20ps. They have raised their price target to this as they expect the market may support the AWC price in the short term as a result of M&A in the sector and a renewed focus on alumina/aluminium. Their NPV is $6.74 based on a US90c/lb LT aluminium price. With the aluminium cost curve moving up, there may be upside to LT price, but we prefer BHP & RIO to AWC for their more attractive relative valuations.

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!