Natural Resource Partners: Exorbitantly Overpriced After The Strong Rally

Summary

• Natural Resource Partners has seen their unit price rally strongly following their distributions avoiding a suspension.
• This surprising outcome was thanks to coal prices surging, but despite the positive outcome, their unit price still appears exorbitantly overpriced.
• Even under a bullish scenario whereby their distributions defy the long-term pressure from the clean energy transition, there is no material potential upside remaining.
• Once adjusting their risk to better reflect their situation, their unit price appears to be trading around one-third higher than its intrinsic value even with the same bullish assumptions.
• Since there is little scope to generate alpha but significant downside risks, I believe that downgrading my rating to sell is appropriate.

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Introduction

After sustaining their distributions throughout 2020, notwithstanding a temporary suspension during one quarter, Natural Resource Partners (NYSE:NRP) was facing an unavoidable distribution suspension when entering 2021 but surprisingly, coal prices surged and thus saved

Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.