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Hallador (NASDAQ:HNRG) reports sales contracts and visibility for the years 2023 and 2024. Management is also expecting an increase in the price per ton of coal, and estimates indicate free cash flow growth and decent margins. In my view, if capital expenditures and acquisitions continue, and there are more investments in the renewable industry, free cash flow will likely remain stable. I don’t believe that the current stock price represents very accurately the efforts of management and future earnings.
Hallador: Sales Contracts For 2023 And 2024, And Expecting An Increase In The Price Per Ton
Headquartered in Terre Haute, Indiana, Hallador produces coal in the Illinois Basin for the electric power generation industry. The company is also investing in the renewable industry, but so far most of its revenue comes from the sale of coal:
Among the most beneficial features of Hallador, I appreciate the fact that the company already reports sales contracts for the years 2022, 2023, and 2024. With contracts in mind, developing DCF models is a bit easier. Besides, I appreciate quite a bit that the company is expecting an eventual increase in the price per ton in 2023.
Analysts Expect Sales Growth And Free Cash Flow Margin Of More Than 5.8%
Estimates for Hallador are quite convenient. Most analysts are expecting sales growth of 13% in 2022 and 11% in 2023. The median sales growth including the figures in 2019 and 2020 is equal to 9%. Analysts also expect an EBITDA margin of 17% in 2022 and 26% in 2023. Finally, the operating margin would stand at 13% in 2023.
With respect to the company’s free cash flow, it is quite beneficial that 2022 free cash flow margin will likely stand at 8.9%. Besides, the median free cash flow margin from 2018 to 2022 is close to 7%. I don’t like looking at the past to foresee the future, but in my view, expecting a free cash flow margin close to 7% could be likely:
Healthy Balance Sheet
Hallador reports $2.54 million in cash, property, net plant, and equipment worth $302 million, and about $107 million in debt. In my view, if management decides to acquire other mines, or launch new renewable projects, financial institutions will likely offer financing. I am not concerned about Hallador’s total amount of leverage. Keep in mind that the company reports net debt/EBITDA close to 2x.