Mining Stocks

Natural Resource Partners LP Analysis – October 2015 Update $NRP

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Natural Resource Partners LP (NRP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Natural Resource Partners L.P.is a limited partnership company. The Company is engaged principally in the business of owning, managing and leasing a portfolio of mineral properties in the United States, including interests in coal, trona and soda ash, crude oil and natural gas, construction aggregates, frac sand and other natural resources. The company’s coal reserves are located in the three United States coal-producing regions: Appalachia, the Illinois Basin and the Western United States, as well as lignite reserves in the Gulf Coast region. The company leases its reserves to mine operators under long-term leases that grant the operators the right to mine and sell its reserves in exchange for royalty payments. It also owns and manages infrastructure assets that generate revenues, primarily in the Illinois Basin.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NRP

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $304,403,822 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.46 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -38.83% Fail
6. Moderate PEmg Ratio PEmg < 20 2.34 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.42 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.46 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -10.67 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

NRP value chart October 2015

EPSmg $1.04
MG Growth Estimate -1.51%
MG Value $5.70
Opinion Undervalued
MG Value based on 3% Growth $15.10
MG Value based on 0% Growth $8.85
Market Implied Growth Rate -3.08%
Current Price $2.44
% of Intrinsic Value 42.78%

Natural Resource Partners LP does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the small size, low current ratio, and the insufficient earnings growth over the last ten years.  The Enterprising Investor is concerned by the level of debt relative to the current assets and the lack of earnings growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.16 in 2011 to an estimated $1.04 for 2015.  This level of demonstrated earnings growth is better than the market’s implied estimate of 3.08% annual earnings loss over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Natural Resource Partners LP (NRP)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

NRP charts October 2015

Net Current Asset Value (NCAV) -$12.85
Graham Number $8.58
PEmg 2.34
Current Ratio 0.46
PB Ratio 0.42
Dividend Yield 46.72%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $99,927,000
Total Current Liabilities $219,538,000
Long-Term Debt $1,276,135,000
Total Assets $2,385,105,000
Intangible Assets $64,022,000
Total Liabilities $1,671,142,000
Shares Outstanding (Diluted Average) 122,300,000

Earnings Per Share History

Next Fiscal Year Estimate $0.56
Dec14 $0.94
Dec13 $1.54
Dec12 $1.97
Dec11 $0.50
Dec10 $1.54
Dec09 $1.17
Dec08 $1.97
Dec07 $1.26
Dec06 $1.74
Dec05 $1.70
Dec04 $1.15
Dec03 $0.80
Dec02 $0.14

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.04
Dec14 $1.29
Dec13 $1.42
Dec12 $1.39
Dec11 $1.16
Dec10 $1.50
Dec09 $1.51
Dec08 $1.64
Dec07 $1.43
Dec06 $1.38
Dec05 $1.05
Dec04 $0.62
Dec03 $0.30
Dec02 $0.05

Recommended Reading:

Other ModernGraham posts about the company

10 Companies in the Spotlight This Week – 12/28/13
ModernGraham Valuation: Natural Resource Partners L.P. (NRP)

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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