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CNTEQ3
CNTEQ3
withmanagementonDecember5th,wehavesummarizedtherelevantinformationasanupdatetoour
initialrecommendationonContura.
Q3Review
ConturareleaseditsfirstsetoffinancialinformationonNovember29.Thefinancialscoveredtheperiod
ofJuly26toSeptember30,thedatethatthecompanybeganoperations.Forthestubperiod,Contura
generated EBITDA of $25.6 million and free cash flow $20.9 million. The company also disclosed
productionandmarginsforeachoftheiroperatingdivisions.Theseresultsweregenerallyinlinewith
our estimates based on extrapolating the two month stub versus preliminary guidance and other
operationalinformationprovidedduringbankruptcy.Thefinancialstatementsalsoconfirmedatotalof
10.3millionsharesoutstandingandnetdebtof$246million(exclusiveofrestrictedcash).
2017Guidance
OfgreatersignificanceforvaluingConturaonagoforwardbasis,thecompanyintroducedformal2017
guidanceinitspressreleaseandupdatedinvestorpresentation.Alinktotheinvestorpresentationcan
befoundherehttp://conturaenergy.com/wpcontent/uploads/2016/11/ConturaIRPresentationFINAL
11.30.16.pdf.Wehavereproducedtheguidanceinthetablebelow:
Contura2017Guidance
Production
inmillionoftons
CAPP
NAPP
Low
High
3.5
7.6
4.3
8.2
PRB
Trading&Logistics
29.0
3.0
34.0
4.0
TotalShipments
32.0
38.0
Committed/Priced
CAPP
NAPP
PRB
Committed
30%
100%
94%
Avg.Price
$101.13
$42.31
$11.05
Costsperton
CAPP
NAPP
PRB
Low
$63.00
$28.00
$9.50
High
$68.00
$32.00
$10.50
Marginperton
TradingandLogistics
Low
$9.00
High
$15.00
Other(inmillionsexcepttaxes)
SG&A
IdleOperationsExpense
CashInterestExpense
DD&A
CapitalExpenditures
TaxRate
$32
$12
$32
$125
$90
20%
$39
$15
$35
$150
$110
30%
CoalMarketUpdate
Theseabornecokingcoalmarketcontinuestoshowresiliency,withspotbenchmarkforhardcokingcoal
FOB Australia currently at $300/tonne and High Vol A destined for Europe approximately $250/tonne
(FOB east coast). Negotiations are currently underway for the Q1 contract settlement, and we
understandthatthebid/askspreadtobe$250$300/tonneascomparedto$200/tonnethatwassettled
in Q4. In addition, over the last month, a number of commodity analysts have increased their 2017
average met coal prices, with many settling between $185 and $200/tonne, a level that is still well
below spot prices. We would note that the forward curve for 2017 is currently $192 and for 2018 is
$160.
2017Estimates
Basedonthemidpointoftheguidanceprovidedbythecompany,weestimate2017summaryfinancials
assuming$130/trealizedmetcoal(wellbelowtheforwardcurve)aswellasspotpricing:
2017Estimatesbasedonmidpointguidance
MetCoalPrice
$130/t
Revenue
EBITDA
FreeCashFlow
$1,193
$349
$172
Spot(1)
$1,362
$517
$298
(1)
$250AtlanticBasinFOBUSEastCoast,netoftransport
Valuation&UpcomingCatalysts
ForthepurposesofcalibratingourConturavaluation,webelievethatacomparisontoArchCoaltobe
themostmeaningfulgiveni)similarproductionmixofmetandthermalcoalandii)thefactthatboth
companiesrecentlyemergedfrombankruptcyprotection.Basedonthetablebelow,weestimatethat
ConturaistradingatamaterialdiscounttoARCHonanEV/EBITDAandFCFYieldbasis.Applyingsimilar
valuation parameters as ARCH would imply a share price of approximately $120 per CNTE share
(assuming a realized met coal price of $130 per ton). Using a broader comp set highlights an even
greaterdiscount.
We believe that there are a number of pending catalysts that will serve to close the valuation gap
between CNTE and ARCH as well as other peers. Specifically: 1) Pending listing on a recognized
exchange, given demand registration rights become effective February 1; 2) Management focus on
investor relations, as evidenced by recent conference call and detailed investor presentation; 3)
mainstreamresearchcoverage;4)filingofauditedfinancialstatementsbytheendofFebruary;and5)
coalsettlementpricesforQ1.
ValuationComparison
(millionsunlessnoted)
CNTE
$130/t
ARCH
Spot
(1)
FDShareso/s (2)
Shareprice
MarketCap
NetDebt(3)
Enterprisevalue
10.50
$69.00
$725
$ 247
$972
10.50
$69.00
$725
$ 247
$972
24.89
$82.00
$2,041
$55
$2,096
Revenue(4)
$ 1,193 $ 1,362
$2,556
(4)
EBITDA
EBITDAmargin
$ 349 $ 517
29%
38%
$468
18%
Freecashflow(4)
FCFmargin
$ 172 $ 298
14%
22%
$312
12%
EV/EBITDA
FCFYieldtoEquity
2.8 1.9
24%
41%
4.5
15%
1)
$250AtlanticBasin,FOBUSEastCoast,netoftransportcosts
2)
Fulldilutedutilizingtreasurymethodforcalculatingimpactofdilutiveinstruments
Includesunrestrictedcashonly
3)
4)
ForCNTE,assumesmidpointofguidance.ForARCH,assumesconsensusof4reportinganalysts
PeerAnalysis
ArchCoal
CloudPeakEnergy
ConsolEnergy
AllianceResourcePartners
CNXCoalResources
ForesightEnergy
NaturalResourcePartners
ConturaEnergy2017Guidance@$130/t
2017Guidance@Spot
ARCHUSEquity
CLDUSEquity
CNXUSEquity
ARLPUSEquity
CNXCUSEquity
FELPUSEquity
NRPUSEquity
CNTEUSEquity
CNTEUSEquity
Basedonconsensusestimates
2017EEBITDA(mm)
$468
$130
$886
$556
$130
$293
$214
EV/EBITDA
4.5x
6.2x
9.2x
4.7x
3.8x
6.0x
7.1x
Debt/EBITDA
0.1x
3.1x
3.6x
1.4x
2.0x
4.6x
5.2x
Average
5.9x
2.8x
$349.00
$517.00
2.8x
1.9x
0.7x
0.5x