Peabody Power, the most important US coal miner, will in all probability begin paying dividends subsequent yr after utilizing rising money holdings to repay debt, in response to Lucas Pipes, an analyst with B Riley Securities.
A few of Peabody’s debt covenants embrace restrictions on returning capital to shareholders however the firm has plans to retire all senior secured debt inside a yr. The one liabilities anticipated to stay can be convertible notes issued in 2020, CFO Mark Spurbeck mentioned throughout an earnings name.
Earnings for Peabody and different coal suppliers have climbed this yr amid a worldwide power crunch that’s driving up demand and costs for fossil fuels. The corporate had $1.35 billion in money on the finish of the quarter, greater than double the year-earlier determine. US rivals together with Arch Sources Inc. and Alpha Metallurgical Sources Inc. have introduced hefty particular dividends this quarter, a transfer that makes their shares extra enticing to traders.
“For Peabody to compete in capital markets, they should give a refund to shareholders,” Pipes mentioned in an interview Monday, and it’s “extraordinarily possible” that the corporate will accomplish that subsequent yr.
Regardless of the corporate’s rising money pile, rewarding shareholders or pursuing natural progress can be a greater technique than acquisitions, mentioned Pipes.
He’s additionally skeptical about utilizing inventory to fund any transactions. Regardless that Peabody shares have nearly tripled in worth this yr, Pipes sees potential for extra upside. Meaning any deal funded with fairness can be utilizing shares that haven’t attained full worth.
Pipes has a $31 worth goal for the corporate. Peabody gained 11% to $29.93 at 3:34 p.m. In New York.
Peabody had been in talks with Australia-based Coronado World Sources Inc. however the corporations mentioned Monday that merger talks had terminated.
That leaves Peabody to concentrate on its stability sheet.
“With money generated, we proceed to strengthen our stability sheet by advancing our debt-reduction technique,” CEO Jim Grech mentioned throughout a November 3 convention name with analysts.
