Alcoa

1
Alcoa

• Group 5
• Scott Bird
• Kevin Brown
• Terry McMahon
• John Murray

2
Investment Thesis

• Recommendation BUY
• Diversify Portfolio
• Strong Balance Sheet
• Government support of infrastructure
• Strong Presence Globally

3
Background

• Alcoa, Inc. is the world leader in the production
  and management of primary aluminum, fabricated
  aluminum, and alumina combined.
  
• Alcoa is a global company operating in 44
  countries Australia, Brazil, China, Iceland,
  Guinea, and Russia
  
• Alcoa is involved in all major aspect of the
  industry technology, mining, refining, smelting,
  fabricating, and recycling of aluminum.
  
• Their products are used in aircrafts,
  automobiles, commercial transportation,
  packaging, consumer products, building and
  construction, and industrial applications.

4
Operations

• Mining Rights in Australia
• Joined with Aluminum Corporation of China, China
  International Trust Investment , and Kunshan
  Aluminum Products
  

5
Current Valuation

• Currently trading at a 15 year low (8)
• Facing declining aluminum prices and increasing
  inventories due to decrease in demand
  
• Earnings Yield
• PE Ratio

6
Current Valuation
7
Historical Performance during Economic downturns
1973-1975 1973 Oil Crisis 1980-1982 Energy Cr
isis / monetary policy 1990-1991 Decrease in pr
oduction and trade 2001-2003 Dot.com burst 200
7-present Credit/leverage crisis
8
Forecasted Revenues/EBITDA

• Fjardaal Smelter in Iceland 170m EBITDA
• Juruti Bauxite Mine Development and Sao Luis
  Alumina Refinery Expansion 80m EBITDA
  
• Growth in sheet market in Russia and China
  320m EBITDA

9
Growth Assumptions

• Obama economic stimulus plan of 136b plus
  additional 60b
  
• Will increase construction and the use of
  aluminum materials/products
  
• Help bounce back U.S. auto industry
• Chinese stimulus plan of 586b in railway,
  subway, and airport construction
  

10
Financial Health

• 831 million in cash
• 100 million in debt coming due in 2009
• Strong management team making financially savvy
  decisions

11
Recommendation

• BUY
• 570m in incremental EBITDA in 2010 from expanded
  and more efficient operations in Iceland, China,
  Russia, Brazil, Russia.
  
• Strong management team sound financial decisions
  and proactive acquisition history (831 million
  in cash, weighted average cost of debt is 6.2)
  
• Consistent forecasted growth in industry with
  decreasing number of rivals (industry volume
  growth of 40 by 2012)