Friday, January 20, 2012
Sakari: DMG Sales gives their thoughts on the Co. Note that new Mgt really seem to be changing Co. around. Sakari is due to report results on the 20th February, and all going well, the results should (at a min) be in line with mkt expectations. The reason why stock is exciting is because the new Mgt are proving themselves to be consistently able to deliver into expectations, not only on vol but also on the cost side of the equation as well. Assuming that Sakari can continue this throughout the entire year, then Sakari should grow earnings by 94% in FY12, and given the current 7x P/E this does not seem expensive. More importantly, the target is not achieved by changing any assumptions to house coal price forecasts which remains at a very reasonable blended average price of $102 ton. Historically they have managed to sell the coal at a 5% (Sebuku Island Mine) to 20% (Jembayan Mine) discount to the Newcastle bench mark ($114 at today’s spot price) which equates to $108/t so there is scope for prices to still fall and meet house targets. New mgt from PTT are very successfully ramping up the new Sebuku Island mine which is becoming a company transforming operation. New mine is already producing 2.5mtpa (+60% yoy) and is scheduled to continue growing to 5mtpa by 2014. Effect on costs has been just as dramatic, as the benefits of economies of scale kick in. Technically speaking Sakari broke out of short term resistance today and looks set to test the $2.50 level on strong vol. Given the 7x PE and forecast 94% EPS growth, the counter is not expensive and could rally back up to the $3 level where it was 6 mths ago. Stop loss at $1.80.