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WHC

Whitehaven Coal Down 7.5% On Poor Result

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Whitehaven Coal (ASX: WHC) is the largest independent coal producer and the leading coal producer in New South Wales (NSW). Whitehaven currently operate five mines in North West NSW (four open cut mines at Maules Creek, Tarrawonga, Werris Creek and Sunnyside and one underground mine at Narrabri). Whitehaven has a market capitalisation of A$3.1 billion.

What are the key features of Whitehaven’s HY20 results?

  • Revenue for HY20 is A$885.1 million, down 30% compared with the corresponding period.
  • Net profit after tax (NPAT) for HY20 is A$27.4 million, down 91% compared with the corresponding period.
  • Cash generated from operations for HY20 is A$122.3 million, down 74% compared with the corresponding period.
  • Dividend of 1.5 cents per share (unfranked), down from 20 cents per share in the corresponding period.

What are they main drivers of this result?

The two key drivers of this result are quantity and price. On the quantity side, coal production was down 30%. The main reason why coal production was down heavily was due to an eight-week Narrabri longwall change out and the challenging production conditions at Maules Creek due to labour shortages and production disruption due to drought and bushfires. On the price side, realised thermal and metallurgical coal prices average US$70/t (HY19: US$110/t) and US$94/t (HY19:US$124/t) respectively. The average lower price for this half year resulted in a reduction in cash flow and profit generated from ongoing activities.  

What is the outlook for Whitehaven?

Whitehaven’s management indicated guidance for managed ROM coal production in the range of 20.0Mt – 22.0Mt and managed coal sales in the range of 19.0Mt – 20.0Mt for FY20. 

A factor that is affecting Whitehaven is the US-China trade war. Currently, there is a truce between the two economic power houses with a recent phase 1 trade deal, although there remain substantial tariffs on both sides. Whitehaven’s management notes that this trade war has contributed to the softness in global demand for thermal coal and has contributed to weakness in the seaborne thermal coal price.

Concerns around the coronavirus has also worried global coal markets with a temporary loss of demand for coal in China. However, Chinese coal production has also fallen, which should offset the reduction in demand due to a higher average seaborne coal price.

What is the market reaction to Whitehaven’s HY20 result?

The initial market reaction to Whitehaven HY20 result is negative. Whitehaven is down 7.5% and is currently trading at A$2.18. Whitehaven has endured a troubling year with the share price over the last 12 months being down around 44%. Whitehaven is trading at a forward P/E ratio of around 8x earnings and has an annual dividend yield of around 7%.


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

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