Czech investment bank Wood&Co. revised its recommendation for the shares of the Romanian aluminium maker Alro (BVB: ALR) from Buy to Hold, while slashing the target price from RON 4.4 to RON 1.62 in the context of the prolonged persistence of high electricity prices.

The recommendation strongly relies on state aid as else the company would sink into losses.

The company’s shares closed on June 3 at RON 1.415.

The investment bank’s analysts expect the electricity price to subdue no sooner than 2024, while the profits of Alro are seen as bottoming out only in 2025.

Nevertheless, the company’s bottom line is seen in the black over the entire period, thanks to the compensation for indirect emissions expected from the state.

“With soaring power prices, we see the cost of electrolytic aluminium exceeding USD 4,700/t, and even with the shift in production towards scrap/ingot processing, we expect gross margins to be negative,” the research report reads.

Wood&Co. sees the compensation for indirect emissions as key to the profitability of Alro, potentially covering 63-74% of the power costs to produce electrolytic aluminium over 2022-2026.

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andrei@romania-insider.com