I’m probably preaching to the converted here, but I just wanted to share my calculations, which demonstrate that the valuation of YAL has reached insanely low levels, and discuss potential dividend amounts.
At current prices, YAL has an EV/EBITDA ratio of 0.71 (see calculations and assumptions below). This is calculated with reference to conservative assumptions, namely that:
• 6,000 kCal sales are 40% of YAL’s thermal tonnes sold. In reality, my calculations show that it has probably been closer to 50% over the last 18 months, and above this in the last quarter. I think this fact is particularly underappreciated by the market.
• YAL has attributable sales of 30Mt/year (current guidance of 31-33Mt/year). This is also well below YAL’s potential attributable sales (38Mt in the 2020CY).
• YAL’s cash operating costs are A$90/Mt (current guidance of $84-88/Mt). This is well above YAL’s historical cash operating costs ($60-70/Mt).
• Pricing lag is only 6 weeks. In reality, it may be closer to 3 months (meaning that more free cash flow is effectively locked in).
There’s a huge safety buffer built into the current valuation. Even if coal prices halved overnight, YAL would still only be trading on an EV/EBITDA multiple of 2.5x.
YAL is clearly unloved, even compared to other coal stocks. So what might change sentiment? The most likely big catalyst is the upcoming dividend.
YAL’s constitution states that it must pay at least 50% of NPAT/FCF in dividends. Conservatively, NPAT for the full year is likely to be at least $3.6bn (a bit more than double the HY figure).
So, if they paid the minimum amount, the dividend would be $1.1bn, or 83 cents/share ($1.8bn minus the $700m dividend already paid). But this is being overly conservative. In reality, YAL’s payout ratio was 60%, 58% and 118% in 2018, 2019 and 2021 respectively. I would guess that YAL is likely to have a higher payout ratio than 60% this year, given its very strong balance sheet. At 31 December, YAL is likely to have a net cash position exceeding $2bn, compared to a net debt position of approximately $2-3bn from 2018 to 2021.
A 75% payout ratio would mean a final dividend of approximately $1.50 per share. A 100% payout ratio would mean a final dividend of approximately $2.20 per share. A 118% payout ratio would mean a final dividend of approximately $2.70 per share. This seems extraordinary, but well within the realm of possibility. YAL was very generous with its 2021 final dividend when it was in a much worse financial position (net debt of $1.9bn vs net cash of $2bn this year). A dividend of $2.70 per share would be less cash than YAL has generated in the last 6 months. It seems likely that the dividend will be franked, at least partially, given the profits generated this year.
Any corrections or comments welcome.
(20min delay)