New Value Analysis of Alliance Resource Partners LP (NASDAQ:ARLP) 2018
New Value Analysis of Alliance Resource Partners LP (NASDAQ:ARLP) 2018
A new value analysis of Alliance Resource Partners LP (NASDAQ:ARLP), a company listed on the NASDAQ Market in USA, has been added to our research pages here. ARLP is a listed partnership based in USA. ARLP is a diversified producer and marketer of steam coal to major United States utilities and industrial users. ARLP was first publicly traded master limited partnership involved in the production and marketing of coal and began mining operations in 1971. ARLP is the third-largest coal producer in the eastern United States. ARLP’s subsidiaries operate ten mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia, including a new mining complex in West Virginia.
ARLP’s recent price peak was around $50 in July 2014. Since the price peak in 2014 the price of limited partnership units has declined roughy 77%. During that time period earnings have declined just over 20%. The company has cut the dividend twice since 20014, although it was raised in 2017 and just recently again in 2018. The dividend now stands at a level about 24% where it was in 2014 and the current yield is around 12%.
It seems likely that the price decline has been exaggerated in comparison with the decline in earnings and the dividend, which creates a significant opportunity for value investors.
There are a couple of risk areas. The first one is that limited partnerships provide part of their return to owners of the limited partnership units as a return of capital. This can create a requirement to issue new units to increase the capital base of the partnership. Since 2014 just over 24 million units have been issued, which does dilute the earnings per unit over time. The current low price compensates for this risk.
The second risk area is true of all commodity producers. The earnings are significantly driven by the price of the commodity. ARLP does do some hedging and can vary its cost base, but investors should be aware of the likely volatility as a result of variability of earnings based on the commodity price. In ARLP’s case is is the price for steam coal.
A quick note about tax. As part of the dividend is a return of capital investors should be aware that the income part of the dividend will be treated differently to the tax part of the return. Wherever, you are in the world make sure you are aware of how your return will be taxed in your own jurisdiction. This website is based in Uk so for UK investors we recommend you hold ARLP in a pension or an ISA account to avoid any tax issues. If UK investors hold ARLP in a taxable account a withholding tax will be applied by the US tax system and then depending on your personal tax position you may be able to reclaim some tax in UK.
To find out exactly why value investors would consider an investment in Alliance Resource Partners LP click here to download the new analysis.
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