The aluminum giant is achieving great results, but it sees risks on the horizon.
– We have record results in the second quarter, but the third and fourth quarters look more murky. We’re seeing demand fall, and the market is more balanced than it was a quarter century ago, says Hydro’s chief financial officer, Pål Kildemo.
He says this after Hydro reported a pre-tax result of NOK 14.1 billion in the second quarter.
– The market was strong. We’ve had high prices for aluminum and good prices for alumina,” says Kildemo.
Hydro’s board of directors is proposing a dividend of NOK 3 billion, as well as a buyback of private equity of up to NOK 2 billion. Pleased financial director.
It’s the fifth consecutive quarter we’ve had record results, and we’re excited to be able to share that with shareholders, like dividends and share buybacks.
Analyst at Pareto Securities, Kenneth Seifertsen doesn’t have much to complain about the dividend either.
The market received exceptional dividends and share repurchases with a total value of NOK 5 billion. It shows how well the company is capitalized, he says.
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Kildemo says that everything that happens on the macro side affects the company.
– If we go into a recession, it usually affects demand.
Hydro has done a good job securing long-term energy contracts with the very high prices we have now. However, this feature may disappear as contracts expire.
– We have very high energy prices now, and we have already seen about 900,000 tons of low aluminum production capacity globally. We estimate that about an additional 1 million tons represents a high risk, which will probably not be profitable to produce when existing energy contracts expire, says the CFO.
The Pareto analyst also highlights long energy contracts as a positive factor for the aluminum company.
– They are well positioned, considering that they produce aluminum with low CO2 emissions and have a huge currency advantage. Plus, they have long energy contracts, which not everyone has, he says.
Strong rise in the stock market
Hydro ended the day 6.39 percent higher in the Oslo Stock Exchange, ending as the second most traded stock after Equinor on Thursday.
– The numbers were in line with what we expected, both from net income and the calculation of interest, taxes and depreciation (total operating result, journal note). They present very well. That’s what’s driving the share up today, Seifertsen says.
However, Pareto does not currently have a buy recommendation on the company.
– We have a neutral recommendation. There is some upside in the target price, but there are doubts about the overall picture. He says there are risks on the demand side.
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