Tuesday, June 16, 2015

Seeking Alpha: China Shenhua Can Have Life After Coal

Every time it looks coal may be bottoming, somebody manages to bring out a shovel. Hopes that Chinese coal prices would bottom in the summer of 2014 around RMB 510/t proved too optimistic, as prices continued to make new lows and coal recently traded at around RMB 400/t before a slight rebound. Against that backdrop, the 17% decline in China Shenhua Energy's (OTCPK:CSUAY) share price since my last article isn't so surprising.

What is more surprising about China Shenhua Energy is the extent to which it has a life beyond coal. The company has immense marketable reserves and is the largest coal miner in China, but it generates more than half of its EBITDA from power and transportation operations and these businesses are likely to make up an increasing share of future earnings. These operations don't immunize Shenhua against an even longer stretch of weak coal pricing, but they do at least offer some worthwhile growth potential. Insofar as the shares go, the ongoing declines in global steel, base metal, coal, and other commodity stocks has been a rough lesson in the risk of reaching out to grab falling knives - I can say that these shares look more than 10% undervalued on a 5.5x multiple to 12-month EBITDA, but who's to say that there isn't another 10% downside to EBTIDA?

Read the full article here:
China Shenhua Can Have Life After Coal

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