Sustainable Metals Demand Will Transform Future Industry Landscape

Key Takeaways

• Growing demand for sustainable aluminum and strong renewable energy sourcing reinforce Hydro's leadership and pricing power in low-carbon metals.
  
• Automation, cost savings, and a downstream focus drive margin improvements and position the company for sustainable long-term earnings growth.
  
• Geopolitical risks, weak demand, market oversupply, structural challenges, and volatile costs all threaten Norsk Hydro's profitability and make earnings improvement uncertain.

Catalysts

Engages in the power production, bauxite extraction, alumina refining, aluminium smelting, and recycling activities worldwide.

• Strong growth in sales of low-carbon and recycled aluminum products (greener products sales up nearly 50% YoY and first Hydro CIRCAL contract signed with a major North American auto maker) highlights accelerating end-market demand for sustainable metals, providing upside to both revenue and premium pricing as global decarbonization efforts intensify.
  
• Ongoing expansion and regulatory momentum for climate action in key geographies (e.g., new European Commission target for 90% net GHG reduction by 2040) reinforce Hydro's leadership in low-carbon aluminum, expected to support volume growth, market share, and improved net margins through higher demand and green price premiums.
  
• Value-accretive automation and cost-reduction initiatives, especially in the Extrusions segment, are driving annual fixed cost savings (NOK 150 million/year and further headcount reductions planned), supporting structural margin improvement and EBITDA growth as market conditions recover.
  
• Hydro's long-term, robust renewable energy sourcing portfolio (notably hydro-power for Norwegian smelters) ensures low-cost, stable production and provides a meaningful earnings hedge against energy price volatility, underpinning margin resilience and cash flow stability.
  
• Increased downstream focus, particularly in recycling and extrusions, positions Hydro to benefit from urbanization, automotive electrification, and global infrastructure trends, enabling a more resilient, higher-margin business mix that can drive sustainable earnings growth.

Norsk Hydro Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Norsk Hydro's revenue will decrease by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 6.8% in 3 years time.
• Analysts expect earnings to reach NOK 14.2 billion (and earnings per share of NOK 6.67) by about July 2028, up from NOK 9.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NOK17.5 billion in earnings, and the most bearish expecting NOK9.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, down from 13.0x today. This future PE is greater than the current PE for the GB Metals and Mining industry at 10.2x.
• Analysts expect the number of shares outstanding to decline by 1.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.31%, as per the Simply Wall St company report.

Norsk Hydro Future Earnings Per Share Growth

Risks

• Increased global geopolitical unpredictability (trade tensions, tariffs, and conflicts) is negatively affecting Hydro's entire value chain, escalating operational risks, and could disrupt supply chains or restrict market access, ultimately putting pressure on future revenues and earnings.
  
• Persistent structural challenges in key growth markets-such as energy grid constraints, transmission bottlenecks, and regulatory uncertainty in Brazil-have already led to NOK 400 million in impairments and risk further cost overruns and asset write-downs, directly impacting net margins and profitability.
  
• Weak and declining demand in core downstream segments (notably Extrusions) in both Europe and North America-particularly within automotive and transportation-has resulted in lower sales margins and volume pressures despite efficiency improvements, indicating ongoing revenue and cash flow vulnerability.
  
• The global alumina and aluminum markets remain highly susceptible to oversupply, especially from increased capacity in China, India, and Indonesia; oversupply suppresses global price levels, reduces realized prices for Norsk Hydro, and puts significant pressure on EBITDA and net income.
  
• Elevated and volatile input costs, tight scrap markets, and regional divergences in premiums-including ongoing margin pressures in recycling-threaten Hydro's cost base and further erode profitability, suggesting that earnings improvements are not guaranteed and could reverse in periods of persistent market weakness.

Valuation

• The analysts have a consensus price target of NOK65.875 for Norsk Hydro based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK79.0, and the most bearish reporting a price target of just NOK44.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK208.1 billion, earnings will come to NOK14.2 billion, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 7.3%.
• Given the current share price of NOK62.82, the analyst price target of NOK65.88 is 4.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.