During the first quarter of 2015, guru Jim Simons (Trades, Portfolio) did many trades and one of the biggest adds was in Alliance Resource Partners LP (ARLP).
He increased his stake by 2324%, reaching a total of 271,246 shares.
The investor has traded in ARLP since 2010 Q1, and with this buy he shows how much he trusts this company, considering that the price of the stock dropped by 38% since the beginning of the year and is now trading at a very cheap P/E(ttm) of 5.60.
Alliance is the third-largest coal producer in the eastern United States. It produces and markets coal to utilities and industrial users. It offers coal that is low, medium, or high in sulfur. Further, it provides ash and scrubber sludge removal, coal yard maintenance, and arrangement of alternate transportation services.
The company has a profitability and growth ratio of 8/10 with double-figure returns that are ranked higher than 97% of other companies in the Global Coal industry.
Alliance has a very high yield of 9.53% with a payout-ratio of 54% and a growth rate over the last 5 years of 11.40% (14.30% over the last 10 years).
The negative news comes from the financial situation. Debts are growing and the cash to debt ratio is now 0.03 (very weak if compared to the industry median of 0.37; 96% of competitors have a better cash to debt ratio).
For its first quarter ended May 2, the company announced some increases compared to the Q1 2014. Total revenues increased by 3.4% to $560.4 million, thanks to higher surface facility services and coal royalties related to ARLP’s participation in the White Oak Mine No. 1, which added approximately $14.7 million of additional other sales and operating revenues. Revenues and production contributed to higher EBITDA that rose $1.8 million to $192.2 million, the cash distribution to unitholders increased to $0.6625 per unit, cash distribution increased by 8.4%. ARLP's liquidity remains strong at approximately $551 million and distribution coverage ratio is also a very healthy 1.61 times total unit holder distributions.
The only decrease is about net income that dropped by 8.1% compared to the 2014 Q1. Primarily this drop is a result of increased depreciation, depletion and amortization expense.
To better understand the results, we have to say that 2014 was a tough year for the coal industry. U.S. coal consumption rose a little, but exports dropped a lot and prices were not much better than flat. With all this, ARLP was the best performer for Investments of 2014. It was the only coal miner to post a gain in 2014, and with a market cap of $3.2 billion, was the second largest coal miner by market cap in the United States.
ARLP’s outlook for the rest of the year
The President and Chief Executive Officer Joseph Craft said, "The coal industry outlook remains challenged as demand for U.S. thermal coal has dropped further than expected this year and the supply response has been slow to occur but relying on our sales contract position, strong balance sheet and low cost operations, we remain confident we are well positioned to achieve our financial goals for the year, including growing cash flow again in 2015. We anticipate tons sold would be reduced by a similar amount, or approximately 700,000 tons at the midpoint of the prior guidance range”.
To adjust to current market conditions (low demand for U.S. thermal coal) they have decided to reduce their production further in 2015, and they expect the reduced production will have minimal impact on their cost per ton sold.
The company experienced shipment delays during the first quarter with weather related interruption impacting rail deliveries in February and early March, and frozen river conditions and high waters disrupted barge movement, which caused their coal sales volumes fell below planned levels. However, they expect to ship approximately 800,000 tons above their production in the upcoming quarter in which ARLP is now anticipating to have coal production in a range of 40.2 to 41.2 million tons, and sales volumes would be in a range of 40.75 to 42.65 million tons.
It also anticipates 2015 revenues, excluding transportation revenues, in a range of $2.35 to $2.41 billion and net income of $395 to $455 million to remain unchanged from their initial outlook for the year.
ARLP now expects to fund approximately $20.0 to $25.0 million of its investment commitment to purchase oil and gas mineral interests, in which $8.0 million was funded in the first quarter.
The company looks attractive for the dividend yield and the good returns. The financial situation is getting worse along with the price that won't stop its downward trend. Is this stock on your watch list, or do you already hold it? What is your idea about this never-ending downward trend?
