The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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Markets for illiquid small caps like BISI are anything but efficient. They take a while to process black swan events such as Russia switching off gas supplies to the EU. But they will catch up, especially when coal prices stay high and BISI announces its interim results. Should be a good day! Hold on to those golden tickets as the cliche goes.
The link below is an article from The Daily Telegraph.
No smoke and mirrors, the numbers are a simple reflection of API-4 Benchmark coal prices. I try to make conservative assumptions for discounts to the benchmark for domestic sales and for exports, and for mining costs, allowing for wage and energy cost inflation. I compile detailed accounts so any forecast errors can be identified and corrected. I'm confident about BISI, the recent profit warning (sic) is a taste of things to come.
…wow, that’s one hell of a holding, fair play! 300p cash flow is way above anything that they’ve every declared in the past so if it offers the prospect of large divi’s.
I’ve read that 2 of the 3 coal stations that remain operational in the U.K. currently burn mainly Russian coal ( but often blended with other fuel mix’s) but as a result of the Ukraine events these contracts will not be renewed when the year is up. They are focusing on the USA, Africa and Venezuela for future supplies…
Beza, I don’t estimate eps exactly. The company likes to focus on measures of cashflow, excluding non-cash items such as depreciation and amortization. My estimates of cashflow from operations post-tax are about £14 mn in H1 and £34 mn for 2022, using futures markets for coal price assumptions. That computes to over £3 cashflow per share in 2022. That’s my ballpark figure that I’m targeting. This is a conviction holding for me, I’m not going to sell any of my holding. If one believes that South African thermal coal is vital for European energy security as I do, a well-run business with a strong BEE partner and a tiny mkt cap in relation to its outlook for cashflow, is an unprecedented investment opportunity. I own about 1.7% of the company.
In 2018 BISI reported a £50m turnover. From this they produced a £6.5m profit and 30pence eps (taken from Stockopedia).
Tim, another great snippet of info on BISI. Thank you for sharing your research. Can I ask your opinion as to what you have pencilled in for EPS this year?
Well done Alfreddie for a very good return to your investment.
The Annual Report mentions that Vunani (the BEE minority partner) acquired 6mn tonnes of reserves for Black Wattle at zero cost. As reward, Vunani has been awarded a 50% profit share for those reserves, plus a further 2 mn tonnes it had acquired for BW previously. These reserves were acquired when coal seemingly had no long-term future in South Africa. What is the value to BISI of those 8 mn tonnes? Let's assume margins of US$50/t, annual production of 1 mn tonnes, and an annual discount rate of 10%. On those assumptions, these reserves have a NPV of at least £100 mn to BISI, and the same again for Vunani, whose business model is to acquire reserves for BISI to mine, process and distribute. As a black-owned and managed business, Vunani has opportunities probably not available to some of its competitors. If you're willing to stay the course, the BISI/Vunani partnership could have a tremendous future. And the market is not even properly valuing BISI's current operations, as I show above. The market cap is currently just 25% of the NPV of the 8 mn tonnes reserves, let alone the rest of the coal reserves of the business and the current windfall cashflow.
Well folks I finally decided to sell up today hitting the high of the day making me 44% gain when I recently invested only a number of weeks ago.
Whether I sold out early who knows but either way 44% was a gain to good to resist in current climates personally.
If your still in Good Luck to you all. !!