Friday 19 June 2015

Analysis of ARLP

ARLP, an American coal mining company

ISIN US01877R1086 | WKN 925301 

Business: An American mining company. They mine and sell coal mainly for the production of electricity. They compete with quality of the coal, the price of the coal and with the price of the transport.

Active: Eastern US in the states Illinois, Indiana, Kentucky, Maryland and West Virginia.

P/E: 5.5

This company was analysed due to a request posted on the Analysis Requests page from Falk being one of the companies he owns (is a partner in, in this case).

contrarian values of P/E, P/B, ROE as well as dividend for ARLP

The P/E of ARLP is excellent with 5.5 and the P/B is also great with 1.9 which gives a clear buy signal from Graham. the earnings to sales are impressively high with 16% and the ROE is equally high with 35%! The book to debt is at a ratio of 0.8 which is ok.
In the last five years they have had an yearly revenue growth rate of 7.4% which is spectacular! This then gives us a motivated P/E of 19 to 23 which means that ARLP is highly undervalued on the market today.
They pay a crazy high dividend of 9.8% which amazingly only correspond to 54% of their earnings. Excellent!

Conclusion: Graham and I say yes to ARLP as it looks today. I had to find out how the limited partnership is working because if one would be responsible for the debt then the 0.8 book to debt would have been an issue but as a limited partner one does not have that responsibility. The P/E, P/B, ROE, and dividend are all excellent! The reason I see for that this company is cheap is based on that their product is coal and one need to ask oneself how long will coal be used and sold for electricity and when not for electricity what can then be done with the product.

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