TSX:TECK.A - Post Discussion
Post by
retiredcf on Jan 31, 2022 8:54am
RBC
Their upside scenario target is $64.00. GLTA
Outperform
TSX: TECK.B; CAD 40.68; NYSE: TECK
Price Target CAD 52.00 ↓ 53.00
Teck Resources Limited
Clearing the decks for a strong 2022
Our view: Updated capital guidance had a 2% negative impact on our Teck NAVPS but does not change our positive outlook for 2022 and we continue to expect strong FCF driven by record met coal prices followed by copper growth into 2023 as QB2 ramps up. We lower our price target to $52 from $53 and maintain our Outperform rating.
Key points:
Target to $52: Adding roughly $500M to our sustaining capex estimates and increasing our QB2 capex to U$6.6B from U$6.3B takes our NAVPS down by 2%. We have also updated our 2022 coal production estimate to 26Mt (from 26.5Mt) and sales to 27Mt (from 27.5Mt) which takes our 2022 EBITDA estimate down 1%. Our target falls to $52 from $53 and we continue to use 1.0x NAV and 5.0x EBITDA which are at discounts to the multiples we use for large cap copper producers at 1.2x and 7.0x. Teck guided to an additional $500M in sustaining capex over 2021 levels due to relocating maintenance facilities at Elkview, smelter upgrades at Trail, QB2 sustaining capex and overall cost inflation (our prior estimate was in line with 2021). They also now expect U$900-1,100M of COVID-related impacts at QB2 (from U$600M) which together with the previously announced inflation of up to 5% brings Teck's total estimate up to U$6.4-6.6B and we have increased our estimate to U$6.6B from $6.3B.
Record coal prices to drive strong FCF in 2022: Spot met coal sits at U $444/t FOB Australia as supply constraints that drove the price increase in H2/2021 remain in place (reduced Mongolian shipments due to COVID, lower Chinese domestic supply from environmental/safety crackdowns, and weather impacting Australian and Canadian supply). While we expect the price to moderate throughout 2022, prices could remain strong in the first half. At our estimates for 2022 of U$215/t coal, U$4.25/lb copper, U $1.50/lb zinc, we estimate Teck can generate FCF of $3.3B implying a yield of 16% (after spending U$2.5B at QB2), while at spot prices this FCF would be $8.9B (yield of 43%).
QB2 COVID risks remain: We believe Teck's revised estimates are an attempt to get ahead of potential disruptions from Omicron but there is ongoing risk around capex and timelines, and also completion risks as commissioning starts later this year. U$500M of additional costs would reduce our Teck NAVPS by 1.7%.
Valuation attractive: Teck is trading at 3.2x our 2022 EBITDA estimate and 1.0 our $39.04 NAVPS, vs. large cap copper producers trading at 5.1x and 1.16x and we believe the shares can re-rate as Teck executes on copper production growth at QB2.
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