Constellium SE

CSTM Details

Constellium SE (NYSE: CSTM) is a global sector leader in manufacturing specialty rolled and extruded aluminum products. CSTM’s operating segments are 1) Packaging and Automotive Rolled Products (P&ARP), which manufactures cans and foils for packaging foods and beverages, and heat exchangers for the automotive market, 2) Aerospace and Transportation (A&T) segment, which provides rolled products like aerospace wing skins, plates, and sheets used in transportation and defense sectors, and 3) Automotive structures and Industry (AS&I), dealing in extruded products like crash management systems, side-impact beams, battery enclosures, among others. As of June 25, 2021, the company’s market capitalization stood at USD 2.78 billion.

On the Path of Sustainable Development: On May 17, 2021, CSTM announced that it has priced an offering of EUR 300 million of Euro-denominated sustainability-linked senior unsecured notes due 2029. These notes have an interest rate of 3.125% p.a., payable half-yearly. The proceeds of these notes along with cash in hand will be used to redeem its outstanding 5.750% Senior 2024 Notes. Sustainability-linked notes are in line with CSTM’s objective of achieving sustainable growth through its conscious actions. 

Q1FY21 Results: CSTM reported total revenue of EUR 1.34 billion for Q1FY21 (ending March 31, 2021) compared to EUR 1.44 billion in Q1FY20, registering a decline of 6.68% YoY. The contraction in the topline can be attributed to a 2.03% YoY decrease in shipment volume to 385,000 Mt in Q1FY21. CSTM reported a double-digit decline of 17.69% in its EBITDA of EUR 121 million in Q1FY21 as compared to EUR 147 million in Q1FY20. EBITDA margin reduced by 121 bps in Q1FY21 to 9.02%. CSTM reported a net income of EUR 48 million in Q1FY21 in contrast to a net loss of EUR 31 million in Q1FY20.  

Key Risks: CSTM generates a majority of its sales from a limited number of customers. Loss of any of these key customers could hurt its financials. In addition, CSTM relies on a limited number of suppliers for its aluminum requirements, which is its key input, and any lag in the supply of the requisite quantity or unfavorable pricing could distort its production and in turn, could negatively impact the overall performance of the company.

Outlook: In its Q1FY21 Report, CSTM stated that for FY21, it expects adjusted EBITDA to be in the range of EUR 510 million to EUR 530 million. In FY21, it also anticipates clocking free cash flows of more than EUR 100 million. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CSTM Daily Technical Chart

Stock Recommendation: CSTM has increased 28.36% and 42.11% in the past 3 and 6 months, respectively, and is currently close to the higher band of the 52-week range of USD 7.17 to USD 20.34. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 55.65. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 16.58. Considering the significant uptick in the stock price, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 19.37, down by 2.37% as of June 25, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.

Kaiser Aluminum Corporation

KALU Details

Kaiser Aluminum Corporation (NASDAQ: KALU) manufactures semi-fabricated specialty aluminum mill products, such as aluminum flat-rolled (plate and sheet), extruded (rod, bar, hollows, and shapes), drawn (rod, bar, pipe, tube, and wire) and other cast aluminum products. Its product segments as per end-use applications are aerospace and high strength (Aero/HS), automotive extrusions, General Engineering (GE), and other industrial applications. In Q1FY21, GE products accounted for 46.42% of KALU's net sales. As of June 25, 2021, the company’s market capitalization stood at USD 2.17 billion.

Re-Entering the North American Aluminum Packaging Industry: On April 01, 2021, KALU completed the acquisition of Alcoa Warrick LLC, for an aggregate purchase price of USD 670 million. The consideration was funded by cash on hand and the assumption of post-employment benefits liabilities. This acquisition is aimed to diversify KALU's existing portfolio and mark its re-entry into the packaging industry, which will in turn decrease the cyclicity of its business.

Q1FY21 Results: KALU reported total revenue of USD 324.0 million for Q1FY21 (ending March 31, 2021) compared to USD 369.3 million in Q1FY20, registering a decline of 12.26% YoY. The contraction in the topline can be attributed to a decrease in shipment volume, lower average selling price, and an increase in metal costs. The impact of poor performance of topline percolated down to the company's operating performance, wherein KALU reported a sharp decline of 62.94% in its operating income to USD 16.9 million in Q1FY21 as compared to USD 45.6 million in Q1FY20. KALU reported an 84.54% drop in its net income to USD 4.5 million in Q1FY21 in contrast to USD 29.1 in Q1FY20.  

Key Risks: Reliance and Boeing were the company’s two largest customers in FY20, accounting for roughly 26% and 11% of the net sales, respectively. Further, the top five customers accounted for 54% of KALU’s sales during the fiscal. Hence, the loss of any of these key customers could hurt its financials. In addition, the major input for KALU’s product is primary and recycled scrap aluminum, pricing of which is highly volatile and unpredictable, thus exposing KALU to metal price risk.

Outlook: In its Q1FY21 report, KALU stated that for FY21, it expects a 5 - 10% growth in its value-added revenue (VAR), with a similar EBITDA margin as in FY20. The company also anticipates generating an additional VAR of USD 375 - 400 million from the Warrick acquisition.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

KALU Daily Technical Chart

Stock Recommendation: KALU stock has increased 14.29% and 34.63% in the past 3 and 6 months, respectively, and is currently leaning towards the higher band of the 52-week range of USD 50.49 to USD 141.07. The stock is currently trading just above its 50 and 200 DMA levels, and its RSI Index is 48.90. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 107.90. Considering the significant uptick in the stock price, we believe the current share price sufficiently reflects the strong business fundamentals and have chosen to remain on the sidelines. Therefore, we recommend an “Expensive” rating on the stock at the closing price of USD 128.77, down by 5.74% as of June 25, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.