Paradice increases its chunk of Stanmore Coal

By Trevor Hoey. Published at Mar 4, 2019, in Trev's Stock Tips

Shares in Stanmore Coal Ltd (ASX:SMR) have surged 15% since the company delivered a strong interim result in February, and last Thursday it was announced that institutional investor Paradice Investment Management had increased its stake from 5.1% to 6.2%.

On that day, the company also received some positive commentary from analysts at Bell Potter with the broker increasing its 12 month price target from $1.20 to $1.55, implying upside of 24% to Friday’s closing price.

The price target certainly looks within the company’s grasp given it implies a fiscal 2019 PE multiple of 4.4 relative to the broker’s earnings projections which point to a net profit of $88 million, representing earnings per share of 35 cents.

Bell Potter is also forecasting a dividend of 8 cents per share in fiscal 2019, implying a yield of more than 6%. This is of course all speculation and broker opinions are just that.

Analyst Stuart Howe underlined the key value drivers in saying, “SMR’s key operational near-term value opportunity is to fill the capacity of its existing coal preparation plant and transport infrastructure with the highest margin coal products it has available.

“This currently means dragline mining at Isaac Plains East, having transitioned from Isaac Plains in late 2018.

“The next opportunity is to add further mine capacity and de-risk the progression of mining to the Isaac Downs area over the next two years and potentially develop the Isaac Plains Underground project.

“SMR has recently secured additional long-term port capacity to support this strategy, and we have upgraded our longer term SMR production assumptions out to 2025, to match the company’s infrastructure capacity.”

It is worth noting Stanmore’s recent commentary regarding import restrictions imposed by the Chinese port of Dalian.

While this news appeared to cast a cloud over some stocks that export into China, Stanmore is unaffected with managing director Dan Clifford saying, “The significant majority of Stanmore Coal sales and all of its long term contracted sales are to customers in Japan and Korea.

“Stanmore has limited exposure to China through spot sales which are also made to customers in a range of other countries.”

The increasing institutional support certainly suggests that the smart money isn’t perturbed by what is happening in China.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

Publishers Notice

The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

Thanks for subscribing!

X