Aluminium Price Strength a Portent of Higher Earnings for No-Moat Alumina; FVE Upped to AUD 1.80

We increase our fair value estimate for no-moat Alumina Limited by 36% to AUD 1.80 per share, chiefly due to higher margin expectations. Our 2021 EPS forecast is little changed at AUD 0.11, but our fiscal 2022 forecast more than doubles to AUD 0.24. The increases reflect a rise in both our near-term and midcycle alumina price forecasts. In the very near term, despite aluminium prices having risen materially, its chief input the alumina price remains comparatively weak. In the eight years to 2020, the alumina price traded at an average 17% ratio to the aluminium price. But for the first half of 2021, a spike in dry freight rates to China has seen the link degrade to around 12%. The alumina price has been at sub USD 300 per tonne levels despite aluminium prices soaring to over USD 2,200 per tonne (USD 1.00 per pound).