UBS has downgraded Norwegian aluminum producer Norsk Hydro to Neutral following a share price surge of over 20 percent since the outbreak of conflict in the Middle East. At the same time, the price target has been raised to NOK 110, slightly above the current trading level.
The bank anticipates that higher aluminum prices, supported by supply disruptions in the Middle East, will persist through 2026. However, the valuation is now considered fair at approximately 6x EV/EBITDA and a free cash flow yield of around 6 percent.
UBS sees no signs of improving profitability in the downstream business and does not expect increased cash distributions before 2027-2028.
Norsk Hydro ASA is one of the world's leading producers of aluminium and energy. Net sales break down by activity as follows:
- manufacturing of aluminium products (44.6%): primarily extruded aluminium profiles, rolled aluminium products, tubes, sheet metal, construction metals, automotive components, etc.;
- sale and trading of aluminium (36.4%);
- production and refining of aluminium (16.6%): bauxite and alumina, raw aluminium and aluminium foundry products;
- production and distribution of energy (2.4%): electricity (No. 2 producer in Norway) and hydroelectric power.
Net are distributed geographically as follows: Norway (5.9%), Germany (9.5%), Poland (4.2%), France (3.9%), European Union (12.9%), Switzerland (6.9%), the United Kingdom (2.3%), Europe (7.9%), the United States (22.3%), Americas (7.7%), Japan (3.6%), China (2.6%), Asia and the Middle East (10.3%).
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