Thursday, February 10, 2022

Morning Earnings: Peabody Energy ($BTU)

Peabody Energy (BTU, previously) reported results. Highlights:

  • In the fourth quarter, the company generated $438.4 million of operating cash flow and used $11.8 million of investing cash flow (net of cash receipts from Middlemount and other related parties of $36.3 million), resulting in Free Cash Flow of $426.6 million.
  • During the quarter, the company continued to make progress on its debt reduction activities. The company retired $154.4 million of senior secured debt through open market repurchases. The company also completed multiple debt-for-equity exchanges and issued 3.3 million shares of common stock in exchange for $45.4 million of senior secured notes. 
  • ...approximately $420 million of debt retirements year to date, more than 26% of debt outstanding at the start of the year.
  • During the fourth quarter, the company sold an additional 7.7 million shares of common stock under its previously announced "at-the-market" equity offering program (ATM), raising net cash proceeds of $92.6 million and resulting in 7.7 million shares remaining available under the ATM program.
  • Cost per ton are anticipated to increase compared to the prior year as a result of higher royalties and fuel prices, in addition to incremental costs to increase near term production.

Our first post ever about old Peabody (pre-bankruptcy) in 2015 when it had subordinated debt trading at a yield to maturity of 40%. How things have changed. Now Peabody is free cash flow positive, deleveraging, and has debt trading close to par.

Peabody's current market cap is $1.9 billion, and I count $2.2 billion of net debt, for a total enterprise value of $4.2 billion. The FCF/EV yield is 41%. I think we could call that a cheap cyclical

With Peabody's $420 million of cash from operations in 2021, they spent $165 million in capital expenditures, a reinvestment ratio of 39%. In Q4, they reinvested only 10% (net) of their operating cash flow in capex. This is the same pattern we saw at the integrated oil majors, which are investing less than half of their operating cash flows in maintaining production. 

It is amazing watching these natural resource management teams - Canadian oil majors are a great example - so scarred by the recent bear market that they want to run basically deleveraged companies. They're using free cash flow to pay off debt with negative real yields!

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