Fundamental analysis: ALCOA CORPORATION(#AA)

Alcoa Corporation is an American industrial corporation. It is the world's eighth largest producer of aluminum, with corporate headquarters in Pittsburgh, Pennsylvania. Alcoa conducts operations in 10 countries

⚡️ Growth factors:

• Alcoa could benefit from a structural shift in the aluminum market, driven by China's decarbonisation policies and a 45 million tonne production cap, which will result in aluminum demand outstripping supply in 2023.

• Alcoa expects demand for steel to remain strong and a double digit growth for the near future

• Alcoa's average aluminium price increased by 60% which helped the company paying down $750m of debt in Q2 2021.

• Alcoa expected its "value-add products" business line (e.g. slab, foundry and rods) to perform significantly better, as last year the major slump was due to a reduction in the Automotive segment

• Since 2020, the company has been demonstrating positive dynamics of revenue growth and loss reduction. Making a profit at the end of 2021 can be an excellent driver of growth in the value of shares.

• Major analysts lately confirmed a "buy" rating

📖 Financial indicators:

• Return vs Market: AA exceeded the US Market which returned 32.6% over the past year, AA +165.5%

• Significantly Below Fair Value: AA is trading below fair value by more than 20%

• Earnings Trend: AA has become profitable over the past 5 years, growing earnings by 4.1% per year.

• Short Term Liabilities: AA's short term assets ($4.2B) exceed its short term liabilities ($2.7B)

• Long Term Liabilities: AA's short term assets ($4.2B) do not cover its long term liabilities ($6.3B)

• Debt Level: AA's debt to equity ratio (38.4%) is considered satisfactory

• Reducing Debt: AA's debt to equity ratio has increased from 2.3% to 38.4% over the past 5 years.

• Debt Coverage: AA's debt is not well covered by operating cash flow (5.6%)

• Interest Coverage: AA's interest payments on its debt are well covered by EBIT (5.3x coverage)

OTB Global Investments

21 July 2021