JSW: Higher capex leaves further downside (stays SELL)
On 13 February, JSW announced the updated version of its 2030 Strategy. While its production targets were broadly unchanged, the capex for the period is 41% higher than we had assumed based on the previous guidance. If we include this capex in our model, we see further downside for JSW. We note that JSW should be significantly FCF negative in 2020E and is unlikely to be able to finance these investments when its current cash pile is depleted, by mid-2021E, on our forecasts. At this point, JSW will aim to take on debt, but we doubt the banks will be willing to lend without governmental pressure. Either way, without a significant structural improvement in coal prices (which we do not expect) or meaningful cuts in operating costs, it seems likely that JSW will need an equity injection or government assistance at some stage in 2021E, in our view. For this reason, we maintain our SELL on JSW, with a much lower price target (PT) of PLN 12/share.Jastrzebska Spolka Weglowa is a producer of type 35 coking coal (“orthocoking coal” according to Polish Standard). The main line of Co.'s business is also the mining and sales of steam coal. Co. is also central for selling all coal derivative products, i.e. coke and hydrocarbons produced by coking plants owned by the JSW S.A. Capital Group. The mining area is located in the Upper Silesian Coal Basin. The principal clients for Co.'s products are located primarily in Poland, Germany, Austria, the Czech Republic, Slovakia, and also India and Brazil.
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