azValor Asset Management Comments on Consol Energy

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Sep 18, 2019
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Consol Energy (NYSE:CEIX) (6,56% en Azvalor Internacional*)

Consol shares have plunged 44% so far this year and hit historical lows since the group was spun-out from CNX Resources. There are a number of reasons for this but the main reason is that gas prices in the US have again tumbled close to the severely depressed lows of 2016. However, we believe these prices are unsustainable in the long term (as evidenced by the fact that in 2016 they barely lasted a few weeks), because 100% of producers would lose money. At the same time, US gas producers are being punished by the market just as much as or even more than Consol. In other words, the market seems to be assuming sustained low prices for coal that would not only jeopardize most of the country’s mines (bear in mind that Consol is the most efficient producer and coal is still 30% of the mix today) but also lead gas producers to cut production. This seems incompatible to us.

Consol is the best and most efficient thermal coal mining company in the United States, with abundant reserves, a strong balance sheet and a great management team. Nevertheless, it trades at 3x normalized earnings, and 2x 2019 earnings! It has recently reported strong results and announced its share buyback plan, which we believe will generate great value for shareholders.

From azValor's second-quarter 2019 shareholder letter.

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