According to GuruFocus real time picks, during the month of May 2015, the Hotchkis & Wiley Capital Management LLC, increased his stake in Noranda Aluminum Holding Corp (NOR) by 53.37%. This trade had an impact of 0.03% on the portfolio, and now the Investor holds a total of 12,319,892 shares (17.8% of NOR’s outstanding shares).
NOR is a North American integrated producer of value-added primary aluminum products and high quality rolled aluminum coils which two businesses: upstream business that produces primary aluminum and downstream business that comprises its Flat-Rolled Products segment, which produces aluminum foil.
The company has negative returns (ROE of -12.70%, ROA -0.95%) that are at an average level if compared to the company’s industry. Even financial strength is not in good shape; it is rated 5/10 with a cash to debt ratio of 0.04 that is heavily underperforming the global aluminum industry that has an average cash to debt of 8.79.
The debt-to-equity ratio is very high at 10.11 and even is higher than the industry average, implying increased risk. Of course NOR has a quick ratio of 0.63, which shows the lack of ability of the company to cover short-term liquidity needs.
One good news comes from the net operating cash flow that compared to the same quarter of the last year, has increased of about 12.82% and considering the industry average cash flow growth rate of -46.77%, the company has surpassed over this rate.
The price of the company dropped by 61% over the last 12 months and is now trading with a forward P/E of 21.88, a P/B of 1.40 and a P/S of 0.06 (the P/S is ranked higher than 98% of its competitors).
Last month the stock got shocked by the decision of Apollo Global Management LLC (APO) to sell its shares. APO was holding about 33.1% of the outstanding shares (22.84 million shares) of the aluminum producer prior to the sale; after that, Apollo Global decided they will no longer hold any shares of Noranda Aluminum. What is really important for the investors is that the company didn’t sell any shares in the offering and did not receive any proceeds. Short term investors are waiting for a strong buying offer to see the price jump-up in a short time.
Following the completion of this offering, it is expected that Matthew Michelini, Matthew Nord, Eric Press and Robert Kalsow-Ramos, who are affiliates of the selling stockholders, will resign from Noranda’s board of directors.
The company in this moment looks much weak, and the price doesn’t stop to drop day by day; the company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing returns as stated above, generally disappointing historical performance in the stock itself, the sale we explained before and poor profit margins, and many top gurus suggest to take care of a company that has temporary problems.
The author doesn’t have any open position on NOR, based on the poor profitability and financial situation. What about you ? Do you hold some shares or maybe you are averaging the price down waiting for some good news ?
