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Q223 Earnings review, part III
We continue with the second installment of the analysis of Q3 results for the companies in the model portfolio which, together with those already published in the weekly macroeconomic summary, cover the vast majority of the companies we follow. Specifically, in this publication we will comment on the results of the following companies:
Alpha Metallurgical Resources
Valaris
Braskem
Scorpio Tankers
Here we go.
Alpha Metallurgical Resources
AMR's results were not too surprising, since the metallurgical coal company had already published, a few weeks ago, a production and operations preview for the period, which led us to expect a weak report, due to mechanical problems at Dominion's export terminal. AMR generated $154M of EBITDA in the quarter, which compares very negatively both QoQ and YoY, due to lower raw material prices, and a quarterly profit of $6.65/s.
In terms of capital allocation and balance sheet management, they have refinanced their credit facility (recall that debt is very low and also much lower than their cash), obtaining more favorable terms on the same. They have declared a new dividend of $0.5/s, which will be the last, as they prefer to direct their efforts to share buybacks, where they believe the value creation is much higher. In Q3, they have allocated 100% of their FCF to buybacks, where they already accumulated over $940M deployed since inception (March 2022), and still have $560M left under the current authorization, although they will most likely extend it upon completion. As of October 27, the number of shares outstanding was 13,283,594, well below what I expected for this year. I will be updating the Alpha Metallurgical Resources analysis article and model for the company in the coming months.
Towards the end of the quarter, metallurgical coal rates shot upwards but, due to the timing and mechanisms by which deals are closed, they were unable to take full advantage of this movement, and realized prices ($154.7/t on average), decreased by almost 10% QoQ. The current high levels should be captured already in Q4 and, above all, in 2024, so that results will improve significantly in the next reports.
According to the global steel association (obviously a stakeholder), they expect demand for the metal in 2024 to grow by 2%, with developing economies growing at a much higher rate than developed countries, which will be weighed down by the high interest rate environment and geopolitical tension; in particular, demand in Asia is very robust, with India leading the way. They have provided guidance for 2024 and, based on the midpoint of the range, have already committed 25%, showing strong interest in their product, albeit at a fairly moderate price ($161.9/t). Production in 2024 they expect to be up ~10% YoY in the metallurgical segment, but the demise of their thermal coal operations will cause total volumes to increase much less (however, since the price and margin is higher for met, the results will be favored).
As for costs, those related to production should remain in line with this year's, and pose a significantly lower CAPEX figure ($40M lower, at the midpoint), which breaks down as $170M of maintenance CAPEX, $33M in development investments (Kingston Seal project) and $21M carried forward from 2023. While they are no longer experiencing inflationary spikes, as in the last year and a half, there are still moderate increases as contracts for supplies and services, such as repairs or mining material, come up for renewal.
The fourth quarter should also be quite positive, as they confirm that October has been a busy month, although having 88% of their production for the year already committed in price and volume limits the upside somewhat.
Scorpio Tankers
Scorpio Tankers, in its seasonally weakest quarter, reported fairly decent results. In fact, it is surprising that, in a quarter marked by the end of the summer driving season, and with many refineries undergoing maintenance, rates followed a markedly upward path. Looking at the income statement, there are several points to highlight:
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