Post by
Nadia6519 on Apr 12, 2022 7:23am
From Banque Nationale
Teck Resources Limited
TECK.B / TECK (TSX; NYSE): C$51.57; US$41.00 Stock Rating: Outperform Target: C$60.00
Teck Provides Q1/22 Coal Sales Update Impact: Modest Negative
This morning, Teck provided an update on steelmaking coal operations for Q1/22, including sales and realized prices given the recent disruptions driven by a CP work stoppage. Overall, we ascribe a modestly negative bias to the news despite only a modest Q1/22 sales miss to guidance and NBF Estimates as we anticipate Consensus Estimates to be based on higher sales and realized prices during the quarter. The negative impact of lower sales to NBF Base Case was more than offset by strong prices year-to-date, supporting positive provisional pricing adjustments during the quarter. We estimate the sales miss, offset by higher provisional pricing adjustments is actually a modest positive impact of ~0.4% on our 2022E EBITDA. Recall in late March, it was announced that a strike has begun at CP Rail (CP: TSX; $98.00 Target, Sector Perform Rating, Analyst: C. Doerksen) involving nearly 3,000 engineers, conductors and other train employees after the company and workers' union were unable to settle a long-lasting contract dispute. Operations were shut down for less than a week before an agreement was reached and the ramp-down/ramp-up in shipments happened to occur close to quarter end causing some of Teck's sales to shift into early Q2/22. As a result, this morning Teck announced Q1/22 coal sales of 6.0 mln tonnes (NBF Estimates: 6.1 mln tonnes), compared to guidance of 6.1 - 6.5 mln tonnes at realized coal prices of US$357/t (in line with NBF Estimates of US$357/t). No cost guidance was provided; however, we are modeling higher costs in Q1/22 of $125/t and $119/t for the year within Teck's guidance range of $115-$123/t. Additionally, driven by strong prices, Teck announced positive provisional pricing adjustments of $88 mln in the quarter (ahead of NBF Estimates of $40 mln). Teck expects sales to be higher throughout Q2/Q3 and continues to guide for 24.5 - 25.5 mln tonnes of coal production in 2022, compared to NBF Estimates of 25 mln tonnes (with sales of 26.5 mln making up for lower volumes in late 2021 as a result of heavy rainfall in BC).
Our Outperform rating is supported by a step-wise improvement in Teck's coking coal operations in 2022 following completion of the Neptune terminal expansion. Record coal prices continue to drive near-term FCF, which we believe isn't accurately reflected by the current share price. Teck's strong balance sheet, cost reduction initiatives, organic growth within the copper division and long-term commitment to returning capital to shareholders are all supportive of a higher valuation than currently ascribed by the market.
TECK/B is trading at 1.33x P/NAV compared to Intermediate Copper peers at 1.10x and 3.9x EV/2022E CF compared with Global Diversified Peers at 5.1x. Our target price is derived from a multiple of 1.2x NAV (50%) + 5.0x EV/2022E CF (25%) + 5.0x EV/2023E CF (25%).