Kaiser Aluminum KALU
July 07, 2006 - 1:03pm EST by
ran112
2006 2007
Price: 46.00 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 920 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

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Description

Kaiser Aluminum (KALU Nasdaq) $46.01
 
Outstanding shares.  20 million common shares
Current market value:  $47.50 per share
Enterprise value:  $921 million + $273.1 in total debts - cash  = $1.194 billion.
 
Sales for 2005 were $1.145 billion.
Sales are likely to touch $1.44 billion in 2006, and increase to $1.6 billion in 2007
EBITDA is forecast to exceed $308 million in 2006, and increase to $385 million in 2007.
 
Aluminum prices are forecast by both Alcoa and Alcan to be strong for the next 18 months. Aluminum prices have increased from an average of $.86 per pound in 2005, to over $1.14 today.  Demand is forecast to exceed supply by about 1%.  EBITDA growth for the two median firms is forecast to grow in 2007 by 55.8% and 21.5% respectively.  Several proposed smelters in Canada have been curtailed due to capital cost escalations.
 
This means that purchases of existing integrated producers may be one way for the giants to expand.
 
One possible target could be Kaiser Aluminum.   Kaiser is an aluminum producer.  Kaiser produces about 500 million pounds of aluminum sheet, plate, tubing, rods and various extruded products.   The company also owns 49% of an aluminum smelter in Wales.  The firm went public TODAY after four years in chapter 11 bankruptcy. 
 
Replacement cost of just the 49% smelter interest is estimated to exceed $360 million U.S.  I have not yet done a workup of the replacement cost of additional assets.
 
Alcan presently sells for approximately at .96X  2006 EV/REVENUE.  The stock trades for 6.7X estimated 2006 earnings, 4.6X estimated 2006 EV/EBITDA, and 3.8X estimated 2007 EV/EBITDA. 
 
Alcoa presently sells for 1.1X 2006 est. EV/REVENUE.  The shares sells for 8.1X estimated 2006 earnings, 5.3X estimated 2006 EV/EBITDA and 3.5X estimated 2007 EV/EBITDA.
 
Kaiser presently sells for approximately .83X 2006 EV/REVENUE, 3.9X  estimated 2006 EV/EBITDA, and less than 3.2X estimated 2007 EV/EBITDA.
 
Kaiser’s balance sheet is less levered than both Alcan and Alcoa.   The company seems intent upon making acquisitions.  With its strong balance sheet and modest market cap, accretive purchases should abound.
 
All companies appear to have merit in this industry.  Kaiser seems particularly attractive to me.  It is priced below the level of Alcoa, has a strong balance sheet, and is not yet represented in indexes. This will be rectified in coming quarters.    Rio Tinto, which also owns 51% of the aluminum smelter in Wales, could certainly also look to buy Kaiser.
 
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Catalyst

Inclusion into indexes. Rising aluminum prices. Accretive possible purchases. Takeover by larger producers
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