Alliance Resource Partners: profit up a third, but royalties, not coal, did the lifting

On July 27 Alliance Resource Partners reported results for the second quarter of 2026. Revenue added 0.7% year on year to $551.6 million, net income rose 33.9% to $79.6 million, and EBITDA was up 12.5% to $185.7 million. The profit gain came from royalties and one-off effects rather than the coal segment, whose revenue declined. At an EV/EBITDA of 6.06 against its own three-year average of 4.54 and a dividend yield of about 9%, the unit looks rather attractive, but only if the second quarter proves not to be a one-off spike.

Key takeaways

— Revenue growth of 0.7% was driven by royalties, while the coal segment declined

— Profit rose by a third mainly on a low base from last year

— EBITDA margin rose to 33.7% on higher oil and gas prices

— Leverage of 0.62x EBITDA LTM is moderate, but debt is growing

— Free cash flow covers dividends with a margin

— Dividend yield of 9% on a quarterly payout of $0.60 per unit

— Valuation is above its own history: EV/EBITDA 6.06 vs. 4.54 average

Attractiveness

Key figures, USD bn

Revenue growth of 0.7% was driven by royalties, while the coal segment declined

Total revenue in the second quarter of 2026 was $551.6 million, up 0.7% from a year earlier. However, coal segment revenue declined: coal sales brought in $469.5 million versus $485.5 million a year ago. The drop was due to a 5.3% decrease in the average coal sales price to $54.87 per ton, despite a 2.1% increase in volumes.

The main contribution to growth came from royalties. Oil and gas royalty revenue reached a record $46.3 million, up 30.5% year on year. This was driven by a 22.7% increase in average realized price to $49.43 per BOE. Sales volumes in BOE rose 6.4%.

Coal royalties also grew: revenue increased 9.7% to $13.0 million on a 37.2% rise in royalty tons sold. Thus, diversification into royalties is starting to pay off, offsetting weakness in the coal market.

Profit rose by a third mainly on a low base from last year

Net income in the second quarter of 2026 was $79.6 million, up 33.9% from the same period last year. However, this growth is largely explained by a low base: a year earlier the company recognized a $25 million impairment on a preferred equity investment, which reduced profit then.

In addition, in the reporting quarter the company earned $9.5 million in equity method investment income versus a $1.5 million loss a year earlier. A change in the fair value of digital assets also had a positive effect: a loss of $6.3 million versus a gain of $12.9 million a year earlier, but still better than in the previous quarter.

Thus, the one-third profit growth is largely a low-base and one-off effect rather than a sustainable operational improvement. Excluding these effects, profit dynamics would be more modest.

EBITDA margin rose to 33.7% on higher oil and gas prices

EBITDA in the second quarter of 2026 was $185.7 million, up 12.5% year on year. The EBITDA margin rose to 33.7% from 30.1% a year earlier. The main reason was the growth in oil and gas royalty revenue, which has higher margins than the coal business.

Segment EBITDA for oil and gas royalties reached a record $38.0 million, up 27.2% year on year. Segment expenses rose 58.5% to $7.2 million, but their share of revenue remains low. The coal segment also showed EBITDA growth of 6.9% to $151.7 million thanks to a 6.3% reduction in unit costs to $38.68 per ton.

The reduction in unit costs in the coal segment came from higher productivity at the River View and Tunnel Ridge mines. This helped offset the decline in coal prices. As a result, the overall EBITDA margin improved despite lower coal segment revenue.

Leverage of 0.62x EBITDA LTM is moderate, but debt is growing

Net debt at the end of the second quarter of 2026 was $394.2 million, corresponding to a net debt/EBITDA LTM ratio of 0.62. This is a moderate level that does not raise concerns. However, absolute debt is growing: over the last 12 months net debt increased by 0.1 billion rubles, and versus the previous reporting date by 0.0 billion rubles.

Total debt and finance leases as of June 30, 2026 were $590.2 million. The company has access to liquidity of $424.0 million, including $111.2 million in cash and $312.8 million in available credit lines. This is sufficient to cover current needs.

The debt increase is related to the acquisition of oil and gas mineral interests for $206.2 million, completed on July 1, 2026. The deal was funded with cash on hand, borrowings under the revolving credit facility, and a new $150 million term loan. This increases leverage, but the acquisition should generate additional cash flow.

Free cash flow covers dividends with a margin

Operating cash flow in the second quarter of 2026 was $153.0 million, up 0.9% year on year. Capital expenditures fell to $50.0 million from $67.0 million a year earlier. Thus, free cash flow (before dividends) was about $103 million.

The company paid a distribution of $0.60 per unit for the quarter, or $2.40 annualized. At the current unit price of about $24.71, the dividend yield is 8.97%. The Distribution Coverage Ratio was 1.39x, indicating a sufficient margin for payments.

Free cash flow covers dividends with a margin. However, it is worth noting that the company plans capital expenditures of $280–300 million for 2026, which could limit dividend growth. Nevertheless, the current payout level looks sustainable.

Dividend yield of 9% on a quarterly payout of $0.60 per unit

For the second quarter of 2026, the company declared a distribution of $0.60 per unit, equivalent to $2.40 annualized. The payment will be made on August 14, 2026 to unitholders of record as of August 7, 2026. This is in line with the company's current distribution policy.

At a unit price of $24.71 before the release, the dividend yield is 8.97%. This is above the yield on 10-year US Treasuries, currently around 4.2%. Thus, the dividend yield offers a significant premium to the risk-free rate.

Our estimate for the 2026 dividend: the company is likely to maintain the quarterly payout at $0.60, giving $2.40 for the year. This corresponds to a payout ratio of about 70% of free cash flow. The main risk to the dividend is a decline in coal and oil prices, as well as rising capital expenditures. However, the current coverage ratio of 1.39x provides a margin of safety.

Valuation is above its own history: EV/EBITDA 6.06 vs. 4.54 average

The current EV/EBITDA LTM multiple is 6.06, above the company's three-year average of 4.54. This means the unit is valued more expensively than its average over the past three years. The gap is about 33%. At the same time, P/E LTM is 12.9, and ROE is 17.8%.

According to our model, the fair value of the unit, based on current commodity prices and a target EV/EBITDA multiple, implies a downside of 14% from the current price. This is our own estimate, not a market consensus. Thus, the current price looks inflated relative to fundamental value.

However, it is worth considering that the company is increasing the share of royalties in revenue, which could justify a higher multiple in the future. If the royalty segment continues to grow, the valuation may become more reasonable. But at present, the unit trades above its historical norm.

Valuation on the latest reported figures

Bottom line

Alliance Resource Partners showed strong profit growth in the second quarter of 2026, but it was mainly due to a low base from last year and one-off factors. The coal segment continues to face pressure from low prices, while royalties are showing impressive growth. Leverage remains moderate, and a dividend yield of about 9% looks attractive. However, the current valuation at EV/EBITDA 6.06 exceeds its own three-year average of 4.54, and our model indicates a 14% downside. In the end, the unit looks rather attractive for income-oriented investors, but with limited upside potential.