Mining Stocks

Century Aluminum Co Valuation – July 2018 $CENX

Company Profile (excerpt from Reuters): Century Aluminum Company (Century), incorporated on February 20, 1981, is a holding company, which is a producer of primary aluminum and operates aluminum reduction facilities, or smelters, in the United States and Iceland. The Company operates through primary aluminum segment. The Company’s primary aluminum facilities produce standard grade primary aluminum products. As of December 31, 2016, its annual primary aluminum production capacity was approximately 1,012,000 tons per year (tpy). The Company’s principal subsidiaries are Century Kentucky, Inc. (CAKY), Nordural ehf (Nordural), Century Aluminum Sebree LLC (Century Sebree), Century Aluminum of South Carolina (CASC) and Century Aluminum of West Virginia, Inc. (Century of West Virginia). Its CAKY operates a primary aluminum reduction facility in Hawesville, Kentucky (Hawesville). Nordural Grundartangi ehf, a subsidiary of Nordural, operates a primary aluminum reduction facility in Grundartangi, Iceland (Grundartangi). Century Sebree operates a primary aluminum reduction facility in Robards, Kentucky (Sebree). CASC operates a primary aluminum reduction facility in Mt. Holly, South Carolina (Mt. Holly). Nordural Helguvik ehf, a subsidiary of Nordural, owns a greenfield primary aluminum project in Helguvik, Iceland (Helguvik or the Helguvik project).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CENX – July 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,373,166,112 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.88 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 5.91% Fail
6. Moderate PEmg Ratio PEmg < 20 -42.80 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.66 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.88 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.67 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$0.37
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$5.34
MG Value based on 0% Growth -$3.13
Market Implied Growth Rate -25.65%
Current Price $15.75
% of Intrinsic Value N/A

Century Aluminum Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.29 in 2014 to an estimated $-0.37 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Century Aluminum Co revealed the company was trading above its Graham Number of $7.15. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -42.8, which was below the industry average of 46.07, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-2.08.

Century Aluminum Co scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.08
Graham Number $7.15
PEmg -42.80
Current Ratio 2.88
PB Ratio 1.66
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $568,600,000
Total Current Liabilities $197,200,000
Long-Term Debt $248,300,000
Total Assets $1,580,800,000
Intangible Assets $0
Total Liabilities $750,400,000
Shares Outstanding (Diluted Average) 87,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.24
Dec2017 $0.51
Dec2016 -$2.90
Dec2015 -$0.68
Dec2014 $1.30
Dec2013 -$0.45
Dec2012 -$0.40
Dec2011 $0.11
Dec2010 $0.59
Dec2009 -$2.73
Dec2008 -$20.00
Dec2007 -$2.72
Dec2006 -$1.26
Dec2005 -$3.62
Dec2004 $1.14
Dec2003 -$0.19
Dec2002 -$0.99
Dec2001 -$0.79
Dec2000 $1.24
Dec1999 $0.19
Dec1998 $0.89

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.37
Dec2017 -$0.60
Dec2016 -$0.97
Dec2015 -$0.02
Dec2014 $0.29
Dec2013 -$0.34
Dec2012 -$1.68
Dec2011 -$3.20
Dec2010 -$4.98
Dec2009 -$7.20
Dec2008 -$8.05
Dec2007 -$1.83
Dec2006 -$1.25
Dec2005 -$1.13
Dec2004 $0.11
Dec2003 -$0.31
Dec2002 -$0.21

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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