{"id":107,"date":"2013-08-07T06:48:18","date_gmt":"2013-08-07T06:48:18","guid":{"rendered":"http:\/\/bluegemresearch.co.za\/?p=107"},"modified":"2015-09-14T06:17:33","modified_gmt":"2015-09-14T06:17:33","slug":"wescoal-an-overlooked-coal-junior-with-exciting-prospects","status":"publish","type":"post","link":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/?p=107","title":{"rendered":"Wescoal: An Overlooked Coal Junior With Exciting Prospects"},"content":{"rendered":"<p><em>Initiation of Coverage<em>\u00a0\u2013\u00a0<\/em>Share Code: WSL \u2013 Market Cap: R239m \u2013 PE: 11.1x \u2013 DY: 2.2%<\/em><\/p>\n<p><strong><a href=\"http:\/\/v5j22kvl0zh.c.updraftclone.com\/wp-content\/uploads\/2013\/08\/Wescoal_Initiation-of-Coverage.pdf\">Download Wescoal Holdings Initiation of Coverage Report Here<\/a><\/strong><\/p>\n<p><strong>Business Overview: Coal Miner with Strong Coal Trading Operations<\/strong><\/p>\n<ul>\n<li>Built out of long-established coal-trading operations, Wescoal has moved into thermal coal mining for supply to Eskom.<\/li>\n<li>The Group has built a portfolio of valuable short- to medium-life coal deposits that are mostly either in or near to production.<\/li>\n<li>Khanyisa was previously the only producing mine, but Intibane began production during June 2013 and will contribute to FY 14E. The larger, longer-life mine, Elandspruit, is planned for FY 15E.<\/li>\n<li>The Group has also recently conditionally acquired a large competitor in the coal trading space.<\/li>\n<\/ul>\n<p><strong>Key Issues: Inland Coal Price and Inland Coal Market Dynamics<\/strong><\/p>\n<ul>\n<li>The inland coal tends to track international coal prices, which have been under short-term spot pressure as softer global markets attempt to absorb increasing USA exports.<\/li>\n<li>A looming 2015 supply deficit to Eskom creates risks of regulatory intervention in South Africa\u2019s inland coal market.<\/li>\n<\/ul>\n<p><strong>Forecast, Valuation and Implied Return: Highly Sensitive to Coal Price<\/strong><\/p>\n<ul>\n<li>Our forecasts are heavily influenced by the assumptions underpinning the timing, efficiency and rate of Wescoal\u2019s new coal mines; critically, Intibane in the short term (from FY 14E) and Elandspruit in the medium term (from FY 15E).<\/li>\n<li>Our SOTPs on Wescoal arrives at a fair value of R367m or 213cps, 54% more than the current share price on an implied PE of 18.6x of historical earnings. This implies a fair value of c.R10 per ton of in situ coal for the Group&#8217;s mining assets (c.218cps per WSL share) with a further R56m or 33cps fair value from the Group&#8217;s Coal Trading segment. We have taken out a 20% Group discount for overheads and corporate costs.<\/li>\n<li>Rolling forward all the fair values at our Cost of Equity (19.2%), we arrive at our 12m TP of 246cps for Wescoal on an Exit PE of 10.6x, implying an attractive 78% return.<\/li>\n<li>As a junior coal miner, our valuation of Wescoal is based on the assumption of a flat spot coal price. A sensitivity analysis of our models sees our fair value changing by between 10cps to 13cps for every 1% change in the assumed coal price.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><strong><a href=\"http:\/\/v5j22kvl0zh.c.updraftclone.com\/wp-content\/uploads\/2013\/08\/Wescoal_Initiation-of-Coverage.pdf\">Download Wescoal Holdings Initiation of Coverage Report Here<\/a><\/strong><\/p>\n<p>What do you think of Wescoal? Please <a href=\"mailto:info@bluegemresearch.co.za\">send us a mail with your view of the Group&#8230;<\/a><\/p>\n<p>See our methodology <a title=\"Methodology\" href=\"https:\/\/v5j22kvl0zh.c.updraftclone.com\/?page_id=9\">here<\/a> and note our disclaimer <a title=\"Disclaimer\" href=\"https:\/\/v5j22kvl0zh.c.updraftclone.com\/?page_id=17\">here<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Initiation of Coverage\u00a0\u2013\u00a0Share Code: WSL \u2013 Market Cap: R239m \u2013 PE: 11.1x \u2013 DY: 2.2% Download Wescoal Holdings Initiation of Coverage Report Here Business Overview: Coal Miner with Strong Coal Trading Operations Built out of long-established coal-trading operations, Wescoal has moved into thermal coal mining for supply to Eskom. The Group has built a portfolio [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[40,8,37,13,38,41,39,35,36],"class_list":["post-107","post","type-post","status-publish","format-standard","hentry","category-wescoal_jse","tag-andre-boje","tag-blue-gem-research","tag-coal","tag-equity-research","tag-junior-miner","tag-stock-research","tag-value-stock","tag-wescoal","tag-wescoal-holdings"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/posts\/107","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=107"}],"version-history":[{"count":6,"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/posts\/107\/revisions"}],"predecessor-version":[{"id":187,"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=\/wp\/v2\/posts\/107\/revisions\/187"}],"wp:attachment":[{"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=107"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=107"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/v5j22kvl0zh.c.updraftclone.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=107"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}