Stanmore’s FY18 underlying EBITDA rose more than 70% yoy to A$45.5m, vs Argonaut’s forecast of AS$48m, driven by 14% yoy increase in underlying margin. The Company announced a final dividend of 2c/sh, which we regard as a sign of balance sheet strength ($20m cash and no debt) and confidence to fund growth projects from expanding free cashflow. SMR’s FY19 ROM production is expected to increase >50% with the commissioning of the Isaac Plains East mine (IPE). This mine will have lower strip ratios, higher yields and a higher ratio of coking to thermal coal, resulting in lower FOB costs (A$100/t) and higher realised prices. SMR has growth options including the recently acquired Wotonga South (Isaac Downs) project immediately south of Isaac Plains and the Isaac Plains Underground (IPUG). A BFS on the underground is due for completion in the second half of CY18. The stock is currently trading at a very attractive EV/EBITDA of 2.1x, based on FY19 earnings. We reiterate our BUY recommendation on Stanmore and upgrade our target price to A$1.40 (prior A$1.10).
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