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Company Profile: Alumina Limited (ASX:AWC) is a resource company. It is explicitly focussed on alumina, which is required as a feedstock for aluminium smelting. The company owns forty per cent of Alcoa World Alumina and Chemicals. The company has a consistent performance coupled with ongoing growth and delivers strong returns to its investors. The company strategically invests in bauxite mining globally, alumina refining and aluminium smelting operations through their ownership of Alcoa.
The company reported a statutory net profit after tax of US$286.4 million for the half-year to 30 June 2018, up by 110% from 1H 2017 NPAT of $137 million. Alumina had declared an interim, fully franked dividend of 8.6 US cents per share, compared to a final dividend of 9.3 US cents per share and an interim dividend of 4.2 US cents per share for 2017. Since 30 June 2018, Alumina has received US$180.7 million of net distributions from AWAC entities which have been included in the final dividend.
The average AWAC alumina price is at $424/t, whereas the average AWAC alumina cash cost of production remained at $224/t. The EBITDA of the company increased by US$525.6 million to US$1,208.0 million. The margin for alumina refineries increased by $87 per tonne to US$200 per tonne, whereas the net cash inflows increased by $196.9 million to $660.5 million.
The company paid an interim dividend of 8.6 cents per share on 20 September 2018. It is fully franked at 30% tax rate. The dividends however increased by 4.4 cents per share compared to the prior corresponding period. The company made a 100% pay-out of its free cash. The cash dividend yield remained at 8.5%.
On the balance sheet front, the decrease in the value of assets and liabilities included the effect of the weaker Australian dollar and Brazilian real against the US dollar as of 30 June 2018. The company experienced very strong 1H cash flow, profits and dividends from substantial price tailwinds. However, the increase in cash from operations over 1H2017 was primarily due to higher average realised alumina prices. Distributions paid to partners increased to $961.4 million
Market conditions in 2H continue to be strong. In 2018-19 approximately three million extra aluminium tonnes were likely to be produced mainly with the expansions in the Middle East, and Asia. The company has a positive 2H pricing outlook (nearly three months of 2H pricing complete, API with an average circa $485/t). The Chinese bauxite depletions and environmental and other policies indicate an increased bauxite (or alumina) imports and higher costs.
On the stock-performance front, the stock of the company last traded at $2.620 with a market capitalisation of $7.55 billion. The stock has yielded a YTD return of 18.02% and posted the returns of 9.62% and 12.45% over the last three months and one-month period respectively. It has a 52-week high price of $3.20 with an average trading volume of ~11.56 million. It is trading at a PE multiple of 11.690x with its EPS at AUD 0.224. It maintained a high dividend yield of 9.02%.
Investors are keeping the stock in their watchlist and closely eyeing the earnings release (FY18 results) by the company, expected to be on 21 February 2019. The market participants anticipating juicy dividends, may adopt a balanced approach from equity investment standpoint.
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