Universal Coal: DJ Carmichael initiates coverage with BUY recommendation and $0.76 target

Jul. 19, 2011 8:52 PM ET
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Universal Coal (ASX: UNV) has received a BUY recommendation and $0.76 target from DJ Carmichael.

Universal Coal last traded at less than half of the target at $0.34.

The following is an extract from the DJ Carmichael report.

We initiate with a Buy recommendation and place a conservative value on UNV of $0.76 per share with a base case, high capex option, representing a 100% premium to the current share price.

Key points

UNV's three thermal coal projects are all located in the Witbank Coalfield east of Johannesburg and consist of Kangala, Brakfontein and Roodekop as the field is traversed from west to east.

The Witbank coalfield is at the centre of the South African coal industry, providing an estimated 80% of the energy requirements for the country from a highly developed infrastructure network of road, rail and coal fired power stations.

We undertook a site visit to the projects in South Africa viewing core samples, speaking with management technical staff and visiting the Witbank and Limpopo regions to understand the infrastructure capacity in and around the UNV project areas.

Three coking coal assets in the north of the country provide opportunities to produce higher value coking coal to the export market.

Together with the mix of domestic and export thermal coal products, UNV will have a diversified product offering, generating considerable cashflows once the export coal projects get developed, assuming positive studies.

We have based our valuation on UNV on a DCF analysis of each of UNV s three major thermal coal projects in the Witbank plus a nominal value placed on their coking coal exploration assets in the northern part of the country.

Our sum-of-parts valuation for UNV takes into account the stage of development of each of the projects applying a higher discount to those which are at an earlier stage.

As the projects are advanced and de-risked we will subsequently re-rate and re-value the projects.

We rate management very highly, each having significant experience in South Africa in both technical and high profile corporate roles.


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