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WHC

Whitehaven Hit By Falling Coal Prices

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) shares continue to plummet after updating investors with disappointing half-yearly financial reports. Whitehaven Coal is one of Australia’s premium coal exporters, with a focus on generating supply for developed and emerging Asian economies. They have a market cap of AU$2.1B and currently operate four mines, three which is open-cut and one underground, in Australia with all operating mines in New South Wales. They export both thermal coal and semi-soft coking coal, a comparatively lower quality type of met coal.

The company announced a 1.5 cent dividend, which sits well below last year’s 20 cent dividend, and continues to be held down as a result of falling coal prices. Rising debt is also becoming an increasing concern in light of the company’s falling equity value, contributing to a deteriorating balance sheet. Although coal is a staple for energy consumption around the world, Whitehaven’s focus in the Asian energy market, which disappointed demand expectations over the past year.

Image result for coal mining

The company reported 91% profit decline compared to last year's H1 FY2019 results. The main macro factor driving the change is the decrease in Australia’s coal prices by 24.3% from US$93.12 in March of last year to US$70.47. Whitehaven Coal has also suffered from operational issues around labor shortages at Maules Creek, their flagship mine, drought conditions and negative mining conditions at the Narrabri mine. All these issues culminated in lower production volumes and negatively impacted Whitehaven’s performance.

Some investors believe the company’s EBITDA margin at healthy valuation (~13.6x earnings) suggests that the Whitehaven is still fairly valued. Those investors believe the current situation is a temporary setback, which presents a buying opportunity. The company’s focus on safety also makes it more attractive to some investors and business partners, given the reduced likelihood news regarding poor safety or accidents will heavily impact the share price of the company.


 

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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