DALLAS, TX -- February 1st, 2023 -- Alliance Resource Partners, L.P. (NASDAQ: ARLP): Stonegate Capital Partners updates coverage on Alliance Resource Partners, L.P. The full report can be accessed by clicking on the following link: https://stonegateinc.com/reports/ARLP_Q422.pdf
Record 4Q22 Revenue Leads to Increased Dividend
ARLP reported solid 4Q22 results that continued the trend of strong growth. Both volume and pricing came in better than both last quarter and last year. While inflationary pressures impacted both labor and transportation expenses, top line performance more than offset the effect. While inflationary pressures and supply/transportation issues are expected to remain in the short-term, so are the current energy supply/demand dynamics. Given this, ARLP released FY2023 guidance that implies increased Y/Y coal volumes and prices per ton sold estimates. Lastly, ARLP raised its quarterly dividend 40% q/q to $0.70/sh. The Company has also increased the unit repurchase program from a $6.5M capacity to $100.0M in capacity.
- Strong 3Q22 results stem from record sales prices – ARLP reported revenue, adjusted EBITDA, and adjusted EPS of $700.7M, $287.2M, and $1.63, respectively. This compared to our/consensus estimates of $698.5M/$688.3M, $283.8/$276.0M and $1.45/$1.42, respectively. Upside was seen at all segments, but coal sales was the main driver of the strong year over year revenue growth. Additionally, margins were slightly higher as volumes and pricing surpassed our expectations to partially offset inflationary pressures.
- Coal opeartions continue to point positively – ARLP 4Q22 coal sales were $631.5M, up 53.6% y/y and 14.7% q/q. Volumes sold also increased 2.3% y/y to 9.3M tons. Pricing (asp/ton) was also up significantly 50.1% y/y to arrive at $67.84 compared to $45.19 in 4Q21. While inflation issues continue to negatively impact operations, supply/demand dynamics remain favorable to the coal industry and ARLP. Additionally, these trends are expected to continue such that ARLP believes in should see continued margin expansion into F23 and F24.
- Royalty business also has tailwinds – O&G royalties saw solid results with revenue growing 52.5% y/y to $36.2M. Volumes were up 42.6% y/y and prices were up 7% y/y. The royalty business is expected to continue to benefit from the favorable energy market conditions, favorable forward pricing, and increased drilling/completion activity.
- Hamilton Mine thermal event – Management informed investors that the Company had a thermal event at their Hamilton Mine during 4Q22. Notably there was no injury to personnel or damage to equipment, and the company was able to resume mining in the December 2022. These four weeks of downtime is significant in comparison to other companies who have had operations stop for over a year when in similar situations. Management did disclose that one time expenses from this event totaled approx. $5.8M with approx. 500K tons of production loss. These expenses and loses are expected to be confined to 4Q22.
- Valuation – We use a comparative analysis to frame valuation. Given the strong guidance given by management, we are comfortable using FY23 adjusted EBITDA estimate. Using an EV/EBITDA range of 3.5x to 4.0x with a midpoint of 3.75x, we arrive at a valuation range of $30.09 to $34.57 with a mid-point of $32.33
Stonegate Capital Partners is a Dallas-based corporate advisory firm dedicated to serving the specialized needs of small-cap public companies. Since our inception, our mission has been to find innovative, undervalued public companies for our network of leading institutional investors who seek high-quality investment opportunities.