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I was told the company's broker won't publish research on the company because there would be no institutional demand for it, given what I've said. This veil over the company's existence, and the complete lack of private investor interest (PI's are drawn to BEN for goodness sake!), is highly unusual, and explains why we have been given a chance to buy cheaply. My view is that fairly soon, social media will focus on coal stocks, just as it did with bitcoin, lithium etc etc. At that point, we may see PIs flocking to coal stocks, including BISI. And the share price will then go hyperbolic: previous thematics have not been backed by actual corporate profits, whereas coal most certainly is. I think this will happen, it is only a matter of time.
Yes, end-August definitely. There's a small chance that, once the company have a near-final estimate of the P/L account for the half-year, they'll update the market with another profit warning. I think that would be good practice. There's also a small chance that they will provide a brief summary of production numbers in either Q2 or H1 ahead of the interim results. I asked the Board at the AGM to consider announcing quarterly KPIs, and they said they were sympathetic - although that doesn't mean they will start immediately. But I hope they will accommodate this at some point.
There is no chance of an institution ever buying shares in the company - it's too small and far too illiquid. Equally there is very little chance of there ever being a buy-back programme, unless a significant shareholder approaches the company and wants out. But that seems unlikely given the outlook for coal prices.
Yes, most of them are mine!
A very good question, Edward. You could legitimately argue that companies such as Apple, Google, Microsoft were cheaper in their early days, plus some pharma and some oil producers finding large discoveries. But BISI is undoubtedly a rarity, where there has been an enormous profit warning but with only a tiny market reaction.
BISI's AR21 features two measures of performance, EBITDA and adjusted EBITDA (the main difference being that the former includes capital gains on equities). EBITDA was £5849k and adjusted EBITDA was £5028k. The 6 June Profit Warning stated that results at the interims would be "very substantially ahead" of those for AR21. A reasonable interpretation of that would be at least double, so £11.7mn and £10.1mn resp. That would be my minimum guess. It is very likely that profits in H2 will exceed those in H1. So adjusted EBITDA of £20 mn would be my minimum guess for 2022. (My own best guesses are at least double these figures for H1 and 2022.)
BISI's investment fund was £4.3 mn at end-December 2021, of which just over 50% was invested in foreign listed stocks (and nearly 50% in the UK). Assuming the fund is weighted towards coal, the overseas coal staple WHC.ASX increased from AUS$2.61 on 31/12/21 to AUS$4.92 on 30/6/22 (inc an 8c divi). That's an increase of almost 90%. NHC.ASX increased by nearly 70%. At home, TGA increased by 200%. So £1.7 mn capital gains on the investment portfolio at the interims looks feasible.
hxxps://www.spglobal.com/commodityinsights/en/market-insights/latest-news/coal/030322-robust-european-demand-pushes-richards-bay-5500-kcalkg-nar-coal-to-premium
South African 5500kcal/kg began trading at a premium to API-4 RBCT benchmark 6000kcal/kg in March, owing to increased European demand for non-Russian thermal coal. (As I understand it, 6000kcal/kg API-4 coal is a coking coal grade.) I assume BW mines both types of coal, indeed the 39% discount BW realised in 2021 on its exports relative to the API-4 benchmark more or less confirms that. If this is correct, we can hope that the exports price discount to the benchmark has shrunk markedly since March, as more of our coal is sold into the thermal market. (I think this also explains the growing percentage differential between the Newcastle thermal and RBCT API-4 benchmarks observed this year.)
Google Datt Capital Talk Ya Book for a very good recent interview of a fund manager who is buying thermal coal stocks (the interview focuses on Whitehaven Coal, but it is equally applicable to BISI).
…And futures prices are strong too, especially in sterling terms. Today was xd day I believe. The quoted spread is meaningless, I bought a few more at 252p earlier this week but today the price was 275p. But the quoted spread has barely changed.
Obviously your call Alfreddie. I wouldn't worry about the spread, that will tighten up and liquidity improve once the interims are published, if not before. My suggestion would be that you reinvest at least some of your profits. An alternative is to buy some TGA, not quite such good value as BISI but with a small spread, much greater liquidity and a much much higher mkt cap.
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.
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.
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.
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.
ES, you're right that the price of domestic coal is a major determinant of BISI's profitability. The data provided by the company indicates that domestic sales in 2021 were slightly loss-making. At the AGM they said domestic prices had started to recover, and googled articles in the media confirm that. But I've no idea to what extent. Without some knowledge of domestic prices, it's hard to know just how high profits will be in the first half.
Beza, it will be interesting to see exactly what the Board choose to do with the windfall. I think some of the windfall will be held as cash, invested in equities and in property. But I agree with you that bumper special dividends will be part of the package. I don’t think a share split helps. A very high proportion of the equity is held by the family and other long-term holders, who won’t be selling. A takeover offer by LAP is not impossible.
I think that’s a little too high. My understanding is that there are royalty payments to the government of around 5% of revenues; 28% corporation tax payments in South Africa; and a 15% minority interest in the profits due to the BEE partner Vunani. But there’s no doubt that cash generation in both H1 and 2022 as a whole is going to be phenomenal. And not reflected in the share price.
PS: A Board member commented that there are no broker reports on the company, because no client could buy any shares in the company to profit from the research, given a notoriously illiquid market for the shares. So it's up to PIs to do their own research on the outlook for profits. My own research indicates that many unloved coal miners are currently trading on a 2022 earnings forecast of a p/e of about 1; BISI looks around that too imho.
I attended today's AGM and met nearly all the Board members. I've posted some reports on the AGM at the other well-known discussion site! It's a great time to be a BISI shareholder, the interims might conceivably shock the market on the upside, as alluded to in the recent TU. It's reasonable to guess that the annual results could be equally good.
We haven’t lost anything, except the unanticipated chance to buy more shares cheaply. I don’t see the point in second guessing the CEO, we don’t know as much as he does. But imo any future value to those projects remains uncertain at the moment. PC wouldn’t have had any regulatory requirement to mention them earlier, or he’d have done so.
Why are you so suspicious of people who hold different opinions to yours? I normally post on another website, but wanted to counter the view here that it was good business practice to continually dilute existing shareholders’ equity for no reason. I mentioned my holding just to show that I have confidence in the management and assets, whereas you clearly don’t. Finally, if I were the CEO, I’d be reluctant to tell the world about new projects until (a) I had land rights to them, and (b) I was confident they had value and so wasn’t misleading shareholders. I’m guessing PC would have similar opinions. But who knows.