Kaiser Aluminum - dont just listen to mgt

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#1
Kaiser Aluminum (KALU) is a US based aluminum company. Aluminum is of course a cyclical commodity. 

A fundamental part of KALU's business model is to remain neutral to the impact of fluctuations in the market price for aluminum and certain alloys. The goal is to earn profits predominately from the conversion of aluminum into semi-fabricated mill products.

So it tries to negate the cyclical impact with its “metal price neutral” approach using Conversion Revenue as the key top-line metric.

But my analysis showed that there is a 0.85 correlation between Conversion Revenue and aluminum prices making KALU a cyclical company. Any analysis and valuation should be based on its performance over the cycle.

Moral of the story....don't just accept what is reported in the Annual Reports or what management says. Verify with numbers. Make sure that what is presented is not PR spin.
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#2
Kaiser Aluminum serves the cyclical aluminum sector. But it tries to negate the cyclical impact with its “metal price neutral” approach using Conversion Revenue as the key top-line metric.

There is a 0.85 correlation between Conversion Revenue and aluminum prices making KALU a cyclical company. Its metal price neutral strategy is not working. Any analysis and valuation should be based on its performance over the cycle.

However, only the GE product is cyclical. To value KALU, I had to consider the various products that perform differently. I used a sum-of-parts approach to consolidate them.

On such a part cyclical lens, there is not enough margin of safety. There is only a margin of safety if you ignore the evidence that it is a part cyclical company.

[Image: Kaiser-Aluminum.png]
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