Coronado Global Resources Inc.

CRN Details

Q3FY21 Operational and Financial Highlights: Coronado Global Resources Inc. (ASX: CRN) is engaged in the production, marketing and exports of metallurgical coal. During the quarter ended 30^th September 2021 (Q3FY21), the company continued to reap benefits of its unique geographical diversification as a metallurgical coal supplier of scale to match the requirements of steel customers globally.

• Export from US Division: The import restrictions on Australian coal were continued during the quarter. However, the US division realized the benefit of the current elevated price environment and witnessed a decent level of export to China.
• Rising Sales and Production: The saleable coal production for the quarter soared by 6.9% to 4.5 Mt against the June 2021 quarter, and sales volume reached 4.6 Mt, comprised of 2.8 and 1.8 Mt from Australia and the USA divisions, respectively.
• Rising Topline: CRN posted a rise of 35.2% in revenue to US$574 million, and YTD revenue reached US$1,374 million (unaudited), reflecting a rise of 26% against the corresponding nine-month period in 2020.

1H FY21 Financial Summary:

• Growing Revenue: During the half-year ended 30 June 2021; the company recorded growth of 12.1% in revenue to US$800.4 million because of higher sales volumes and the improvement in metallurgical coal pricing.
• Improvement in Losses: CRN witnessed an improvement of 22% in net loss after tax to US$96.1 million against US$123.2 million in FY20.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Pricing Risk: The company’s operational and financial health could be impacted by any adverse movement in the metallurgical coal prices.
• Regulatory Risk: CRN’s business could be impacted by the change in regulatory decisions by international Governments. As a result, its topline growth could be hampered.

Outlook:

• During Q3FY21, the Met Coal prices attained record levels and continue to remain higher because of strong global demand and tight supply. The company is optimistic that index prices of coal are likely to remain above historical averages for the rest of 2021 and into 2022.
• For FY21, the company anticipates saleable production to be the low-end of 18.0 – 19.0 Mt.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As a result of strong cash flow in Q3, the company witnessed an improvement in a net debt position of US$154 million as on 30 September 2021, which comprised of cash balance of US$196 million and Senior Secured Notes outstanding of US$350 million. The stock of CRN is trading above its 52-week low-high average of $0.497 - $1.680, respectively. The stock gave a positive return of ~40.20% and ~111.14% in the past three and six months, respectively. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a correction of mid-single-digit (in % terms). The company can trade at a slight discount to its peers’ average, P/E multiple, considering the COVID-19 uncertainties, negative ROE, and negative net margin. For the purpose of valuation, peers such as Whitehaven Coal Ltd (ASX: WHC), New Hope Corporation Ltd (ASX: NHC), and South32 Ltd (ASX: S32) have been considered. Considering the expected correction, solid rally in the past few months, current trading levels and key risks associated with the business, we give a ‘Sell’ rating on the stock at the current market price of $1.415 as on 22 October 2021, 1:04 PM (GMT+10), Sydney, Eastern Australia.

CRN Daily Technical Chart, Data Source: REFINITIV 

Note: The purple colour line in the chart depicts RSI (14-period).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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