It’s tough being a stock analyst covering U.S. coal companies these days. Just ask Jeremy Sussman.
The managing director at Clarksons Platou Securities Inc. offered up a snapshot of the challenges he faces covering an industry that struggles to attract investors amid competition from cheap natural gas and pressure from environmental activists.
Speaking Thursday at a panel discussion at the CERAWeek by IHS Markit conference in Houston, Sussman said the coal companies he covers have a combined market capitalization of about $9 billion, even though they also have a projected free cash flow this year of about $2 billion. He compared that to Snap Inc., the tech company that makes photo-messaging app Snapchat, which is expected to burn through almost $500 million of cash this year while boasting a market valuation of more than $14 billion.
Of course, much of the U.S. coal industry supplies the metallurgical variety to steelmakers, a completely different market to thermal coal burned by power plants. Sussman, who, perhaps fortuitously, covers other mining stocks along with coal producers, said eight out of 10 incoming calls his firm fields regarding coal are about met coal.
But met coal producers still trade on an earnings multiple of about half that enjoyed by producers of iron ore, another steel ingredient, he said.
“M&A is essential for this space if the public names are to get a multiple uplift,” Sussman said.