FY 14 Results Note – Share Code: WSL – Market Cap: R374m – PE: 12.9x – DY: 1.3%
FY 14 Results: Once-off Costs Create Earnings Miss
- Wescoal reported its FY 14 results with revenue rising 70% to R1.1bn (FY 13: R0.7bn), largely driven by the H2:14 inclusion of the MacPhail acquisition into the Group’s Coal Trading segment.
- Excluding the once-off profits on the sale of mineral assets during the period, the Group recorded an “Operational” EBITDA growth of 124% and HEPS rising to 15.7cps (FY 13: 12.4cps),
- While the Group’s revenue slightly surpassed our forecast of R1.0bn, restructuring and relocation costs in the Coal Trading segment (R6m), intangibles amortisation (R2m), higher than expected costs and a more aggressive rehabilitation programme at Khanyisa and a general dip in Eskom-related volumes of coal collectively saw the Group miss our target HEPS of 21.2cps.
Our Thoughts: Uncontrollable Eskom and Spot Price Variables
- The Group has identified mine extensions for Khanyisa and Intibane while Elandspruit is progressing well towards an expected first production during January 2015.
- MacPhail is integrating well into the Group’s Coal Trading segment and the enlarged business’s prospect look positive.
- Two key variables that will determine the Group’s short-term prospects are (1) Eskom-related coal volumes, and (2) the Rand-price of inland coal. Both variables were soft during FY 14E and—while hard to forecast—indications point to upside here.
Forecast, Valuation and Implied Return: Relatively Flat Update
- We lower our fair value by 5% to 240cps (previous: 253cps), as the time value of money has been offset by a lower spot coal price and slightly lower Eskom volumes.
- The implied PE of 15.3x is not very illustrative, though, as both Elandspruit and MacPhail are currently adding to our SOTP, but not yet (fully) contributing to the Group’s profits.
- Based off this fair value, we marginally raise our 12m TP by 4% to 301cps (previous 12m TP: 287cps), implying a 48% return on an Exit PE of 12.2x (which still would not include a full year’s steady-state contribution from Elandspruit).
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