With a sell recommendation and $2.40 price target, citing stretched valuations, a coverage on Coronado Global Resources has been initiated by CLSA analysts. Opportunistically exiting less than seven months after buying its key asset, the company is wary of the private equity owners, while coal prices run at multi-year highs. In a research note to clients on Wednesday, CLSA analyst Dylan Kelly wrote.
The assets are complex and lower margin structurally, the company can see little reason for investors to be here with a far more attractive coal business such as Whitehaven Coal, while they can understand the allure of the dividend policy. After Coronado raised $774 million, well below its upper target of $1.39 billion, CHESS depositary on the ASX on Tuesday, representing 0.1 shares in the US registered coking coal miner began trading. The offer was priced at $4 a share, after an auction for fund managers last week, at the bottom end of its $4 to $4.80 targeted range.
On Tuesday the share closed 10 percent below the issue price, at $3.60. Coronado’s business is structurally lower-margin at 25 percent, as per Kelly, due to a combination of low-value product mix, peculiar onerous legacy royalties/contracts and low coal quality, which is roughly half its peers. By way of price-linked costs, a lot of the price upside appears to have been captured. In the 2019 financial year, Kelly expects the business to generate a 10 per cent free cash flow yield and says this is “compelling” considering its dividend payout policy of 100 percent in FY19, dropping to 60 per cent to 100 per cent in FY20.
Revised reserve and mine life for Curragh are the next catalysts for Coronado, but for investors there seem to be a little reason in the name. The total revenues were up to $799,683 on six months ended June 30, 2018 from $396,151 in June 30, 2017. The EBITDA was also marginally up from $133,412 in June 30, 2017 to $134,980 for six months ended June 30, 2018. However, the net income decreased from at total of $90,917 in 2017 to $35,651 in 2018.
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