In an Oct. 27 research note, analyst Jackie Przybylowski reported that
BMO Capital Markets increased its target price on Teck Resources Ltd. (TECK:TSX; TECK:NYSE) to CA$54 per share from CA$50 due to the miner's strong Q3/21 results and expected Q4/21 coal prices. Teck's current share price is about CA$34.95.
"BMO has an Outperform rating on Teck Resources."
—Analyst Jackie Przybylowski
In Q3/21, "a stellar quarter" for British Columbia's Teck Resources, Przybylowski described, the mining company achieved record quarterly EBITDA and earnings per share (EPS), both exceeding the forecasts of both BMO and the Street.
Przybylowski discussed Teck's quarterly earnings, BMO's near-term cash flow and coal price expectations and, base on those, revisions made to its model on the miner.
Teck's Q3/21 adjusted EBITDA was CA$2.1 billion (CA$2.1B) whereas BMO expected it to be around CA$1.8B. As for adjusted EPS, it was CA$1.88 versus consensus' forecast of CA$1.46 and BMO's projection of CA$1.41.
The beat was due largely to better-than-expected realized coal prices, purported Przybylowski. Coal prices turned out to be about US$237 per ton (US$237/ton), higher than BMO and consensus' projections of US$230/ton and US$214/ton, respectively.
Given that coal prices have averaged US$370/ton for free on board and US$561/ton for cost of freight since September 1, 2021, BMO raised the coal price it expects Teck to realize in Q4/1 to US$390/ton from US$370/ton. However, BMO expects the upward trend in coal prices to reverse in 2022 when compared to the spot price.
BMO also predicts capex for Teck's QB2 project will exceed the CA$5.26B budget by at least 5%, Przybylowski indicated. Plus, COVID-related costs, estimated to be US$600 million, could also be higher, taking the total capex to more like CA$6.1B. Thus, in its model on Teck, BMO increased QB2 capex to CA$6.2B from its previous estimate of CA$5.9B.
On the other hand, BMO anticipates Teck will generate lots of cash in Q4/21 and in 2022, perhaps even culminating in a one-time capital payout to shareholders. This is before QB2 comes online, which is expected to happen in late 2022.
"Strong cash flows today provide a cushion tomorrow," Przybylowski wrote.
BMO has an Outperform rating on Teck Resources.
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IMPORTANT DISCLOSURES for BMO, Teck Resources, Oct. 27, 2021
I, Jackie Przybylowski, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Teck Resources.
Disclosure 6C: Teck Resources is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 8A: BMO Capital Markets or an affiliate has a financial interest in 1% or more of any class of the equity securities of Teck Resources.
Disclosure 8C: BMO Capital Markets or an affiliate has a financial interest in 0.5% or more in the issued share capital of Teck Resources.
Disclosure 9B: BMO Capital Markets makes a market in Teck Resources in United States.
Disclosure 22: Teck Resources has a security with subordinate voting shares
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BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein.