2025 Pricing and Margin, page-5

I agree with your tonnages to date (based on April tonnage per barge from the operational report and barge numbers shipped through April and May) and your read of the green smudge on that chart for June. [Though we both got gazumped by today's announcement. Make the 1.85Mt we were both expecting for this quarter 1.80 Mt, or so, but I'll ignore that below].

I agree the 1.85Mt vs 2.1Mt in Q4 will add some cost per ton. Perhaps offsetting that there are a few fuel saving upgrades that will only fully benefit costs this quarter. And they should also be delivering some shipping savings. I interpret those will flow into further improved margins, presuming the 20% FOB basis price improvement as coming before any improvement to the shipping costs which Metro are managing, but I am not entirely certain about that, so happy to be corrected. If Arrow's site margins hold then the extra tons which you and I estimate could add $4m to their operating cashflow for the quarter.

As below, I'll just work off Arrow's base.

I'm going to deal with the legacy contracts by deducting the 20% they have mentioned from this year's production, or 1.3Mt of this year's presumed 6.5Mt production. And I presume that is all taken from their planned 2H deliveries and at zero margin, so presuming revenues just cover costs for those legacy contract deliveries. With the extra tonnages planned to be delivered in the second half, but after deduction for the legacy tons, that conveniently makes the 2H quarters' revenue look much the same as Arrow's Q2 numbers. Which gives a total of $134m operating cashflow from Q2-Q4.

Then deduct the company indicated net cost of $20m for the Q1 maintenance and shutdown period. Also deduct annual marketing expenses, debt interest, lease interest, corporate costs and expensed depreciation on the right of use assets and plant, property and equipment, all as detailed in the annual report and presuming no major changes,

I get a net profit before tax estimate at $73m for this year. With plenty of tax credits. And perhaps with a bit of double counting of costs for Q1 from the way I've approached this. I've assumed the foreign exchange issue from last year rolls out and is otherwise addressed as they have indicated.
Putting them on a forecast P/E of 5 for this year.

Better yet, with the legacy contracts to roll off, and with those tons assumed at zero margin this year, the benefit for future years of that quantity at current margins would add another $34m in revenues, with no additional costs. Plus, debt principal payments will reduce the $12m interest cost. Together, all else being equal, those two longer run improvements to cashflow should add a further $46m to my forecast/estimated $73m profit. And we should get much of that locked in for the future in the next 6-12 months and fully realise that within 18months, assuming the interest saved is fully realised by the end of 2026 as defined in their debt agreements.

Risks:
Delivery at minimum production target.
2H contract pricing
Foreign exchange risk management

Possible Upside:
Higher production levels
Legacy contracts delivering positive margin versus the zero margin I've assumed.

I am not an accountant, albeit with some management accounting training. I may have missed or misinterpreted something from the accounts or announcements. The right of use asset depreciation treatment took a bit of checking out. Obviously, this is my non-professional assessment and DYOR and all that applies. But the broker targets look justified, all going well with pricing and production. Plus, there is large upside from the legacy contracts and debt rolling off. More upside if they meet the top end of their production target (though maybe not so likely). And further upside from Simon already looking towards further improvements.

The bottom line, targeting around $73m NPAT for this year and heading towards $120m NPAT in future years, allowing for tax credits, on a current market cap of $370m.
Presumptions on future pricing and production levels and meeting this year's production target obviously all significant. Amongst others mentioned.

E+OE. Interested in other views.