Wood&Co. recommends holding shares in aluminum maker Alro until power prices fall
The Czech investment bank Wood&Co. revised its recommendation for shares of Romanian aluminum maker Alro (BVB: ALR) from Buy to Hold, while significantly reducing the target price from RON 4.4 to RON 1.62 amid prolonged price persistence high electricity.
The recommendation relies heavily on state aid, otherwise the company would sink into losses.
Shares of the company closed on June 3 at 1.415 RON.
Investment bank analysts expect the price of electricity to drop in 2024 at the earliest, while Alro’s earnings are only expected to bottom in 2025.
Nevertheless, the net result of the company is seen in the dark over the entire period, thanks to the offsetting of indirect emissions expected from the State.
“With electricity prices soaring, we are seeing the cost of electrolytic aluminum exceed $4,700/t, and even with production shifting to scrap/ingot processing, we expect that gross margins are negative,” the research report states.
Wood&Co. sees offsetting indirect emissions as key to Alro’s profitability, potentially covering 63-74% of electricity costs to produce electrolytic aluminum over the period 2022-2026.