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Universal Coal plc

Universal Coal is an unusual combination of growth and yield in that it will double coal sales in the next 5 years, funded from internal cash flow, while paying a dividend yield currently at 7% unfranked.

  • The company is entering a cash generative phase, assuming a constant operating margin, as is appropriate for a business selling largely into cost plus domestic contracts, and increasing sales volumes. Forecast cash generated in FY20 is A$65.9M (~50% to UNV).
  • Base Case Net Present Value is A$0.62/sh:
    • Universal at our valuation is trading on a PER of 7.5x
    • 2cps unfranked dividend paid and progressive dividend policy declared at 45% of attributable NPAT. At our A$0.62/sh valuation, the dividend yield is 5.3% in FY20
    • This valuation contains nothing for the next round of domestic thermal coal acquisition/expansion, which may come from a bigger Eloff, Arnot, or some new acquisition.
    • The large Berenice/Cygnus coking coal resource is valued at $15M, but Universal is approaching a level of cash flow where it is capable of developing this asset into something worth a multiple of Universal’s current market value.
  • The withdrawal of the Non Binding Indicative Offer saw the share price fall from 31.5cps to 28cps. On our valuation, this represents a buy opportunity which will disappear once the speculators that were punting the outcome of the bid disappear from the register.

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More details about Universal Coal plc

Official website: http://www.universalcoal.com

ASX on Hotcooper: http://hotcopper.com.au/asx/UNV

Markets: Coal