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ADRO
ADRO, extreme cheapness
🎯 ⚡️ 📈 Rp3,601
Last 12 months cashflow +USD187m ⬆️
September 10th, 2020
⏰ 1 minute read
⏰ 1 minute read
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Sales
Sales growth was down -34% in the 2Q, the 4th quarter of negative growth , well below our forward & back to 2015 levels in a familiar arc... Production was lower -13%, sales -17% & selling prices fell by -20%. We expect an equally familiar recovery from the 3Q, & +0.7% sales growth in the next 12 months to USD3.07bn.
Cashflow
Despite lower sales this is another example of a company making more positive cashflow, partly became of lower investment spending. Cashflow in the 2Q excluding working capital was $114m, higher than last year & above our forecast. With flat sales, but continued low investment spending, we predict cashflow will average a slightly higher $132m a quarter this next 12 months.
Sales growth was down -34% in the 2Q, the 4th quarter of negative growth , well below our forward & back to 2015 levels in a familiar arc... Production was lower -13%, sales -17% & selling prices fell by -20%. We expect an equally familiar recovery from the 3Q, & +0.7% sales growth in the next 12 months to USD3.07bn.
Cashflow
Despite lower sales this is another example of a company making more positive cashflow, partly became of lower investment spending. Cashflow in the 2Q excluding working capital was $114m, higher than last year & above our forecast. With flat sales, but continued low investment spending, we predict cashflow will average a slightly higher $132m a quarter this next 12 months.
2H sales recovery, lower investment, heading to net cash, cheap valuation
Balance sheet
The balance sheet is in net debt, but much lower than it was before. In early 2015, net debt was at USD1.16bn, that’s down to USD610m in the 2Q, which is lower than USD671m in the 1Q. With our forecast free cashflow & if they don’t pay a dividend, this will drop sharply to only $83m in 12 months time.
Profit
While sales declined 34%, net profit dropped -68%. The cash cost ratio net profit add back depreciation minus sales as a % of sales is up to 73% from 71% last year. We use the average 71% as sales rise to predict a next 12 months profit of USD433m, +54% because of a low base created by the 4Q loss.
Value
As can be seen from the debt reduction, ADRO has been a capital payer & this is accelerating as debt reduces. At USD2,741m it’s 0.89x sales, 0.41x assets, 0.63x equity with a 9.9% profitability. We raise our cashflow forecast to USD527m which at 1.6% with an 0.25x adjustment as otherwise it would be too high... gives a target price Rp3,602.
The balance sheet is in net debt, but much lower than it was before. In early 2015, net debt was at USD1.16bn, that’s down to USD610m in the 2Q, which is lower than USD671m in the 1Q. With our forecast free cashflow & if they don’t pay a dividend, this will drop sharply to only $83m in 12 months time.
Profit
While sales declined 34%, net profit dropped -68%. The cash cost ratio net profit add back depreciation minus sales as a % of sales is up to 73% from 71% last year. We use the average 71% as sales rise to predict a next 12 months profit of USD433m, +54% because of a low base created by the 4Q loss.
Value
As can be seen from the debt reduction, ADRO has been a capital payer & this is accelerating as debt reduces. At USD2,741m it’s 0.89x sales, 0.41x assets, 0.63x equity with a 9.9% profitability. We raise our cashflow forecast to USD527m which at 1.6% with an 0.25x adjustment as otherwise it would be too high... gives a target price Rp3,602.
