Company Overview: Whitehaven Coal Limited (ASX: WHC) is mainly involved in exporting high-quality thermal and metallurgical coal from Australia to the rest of the world. WHC is a dominant player in Australia’s only emerging high-quality coal basin. The company operates four mines (three open-cut and one large underground mine) in the Gunnedah Coal Basin of New South Wales (NSW). WHC operates two high-quality, near-term development assets - Vickery, near Gunnedah, and Winchester South, in Queensland’s Bowen Basin.

WHC Details

2021 AGM Highlights: On 27 October 2021, the company held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that during FY21, its largest asset, Maules Creek, achieved record ROM production in FY21.  

• FY21 Results Highlights: At the AGM, the management also highlighted its FY21 financial performance, which was impacted by the challenges associated with COVID-19 pandemic. For FY21, WHC recorded underlying EBITDA of $204.5 million, down by 33% on the previous year, reflecting low prices. Net loss for FY21 stood at $543.9 million, as compared to NPAT of $30 million, reflecting impairment of assets.
• High-Quality Product Portfolio: The management highlighted, WHC is well placed with its high-quality product portfolio aligned with forecasted demand in nearby markets.
• Meet Projected Energy Demand: One of the objectives of WHC is to meet projected increase in energy demand in its near region while making a practical contribution to global carbon emissions reduction efforts.

ROM Coal Production Profile (Source: Analysis by Kalkine Group)

Q1FY22 Operational Highlights:

• Increase In Production: For the quarter ending 30 September 2021 (Q1FY22), the company reported total Managed ROM Coal Production of 5.16Mt, up 15% on the previous corresponding period (pcp). The company’s Equity ROM Coal Production stood at 4.08Mt, up 13% on pcp.
• Decline in Coal Sales: Equity coal sales for the September quarter, including purchased coal, were ~3.9Mt in Q1FY22, down by 23% on pcp.
• Rise in Coal Prices: For Q1FY22, WHC realized average thermal coal price of US$142/t, up from US$94/t in the previous quarter. The realized price for metallurgical coal stood at US$134/t, up from US$103/t in the June 2021 quarter.
• Vickery Extension Project Update: Over the quarter, the company received approval for its Vickery Extension Project, the culmination of an exhaustive process of technical evaluation and stakeholder consultation spanning five years.

Key Metrics: Gross margin for FY21 stood at 36.9%, down from 39.7% in FY20. EBITDA margin for FY21 stood at 42.2%, down from 46.5% in FY20, but higher than the industry median of 36.1%. Current ratio for FY21 stood at 1.18x, down from 1.39x in FY20. Debt to equity ratio for FY21 stood at 0.37x, lower than the industry median of 0.53x.

EBITDA Margin Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 30.33% of the total shareholding, while the top four constitute the maximum holding. Prudential Assurance Co., Ltd. and Lazard Asset Management Pacific Company are holding a maximum stake in the company at 5.38% and 4.85%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Key Risks:

• Fluctuations in Coal Supply: The company is exposed to the risk associated with the changes in seaborne coal supply, changes in international freight rates and the cost of substitutes for coal.
• Change in Macroeconomic Factors: The company’s performance may get impacted by general economic activities, changes in industrial production levels, changes in foreign exchange rates, and changes in coal demand.

Outlook: Looking ahead, the company expects the rising thermal coal prices to result in significant cash generation over the coming months. Further, the company is advancing its three development projects namely, Narrabri Underground Mine Stage 3 Extension Project, Vickery Extension Project, and Winchester South Metallurgical Coal Project, which will support the company’s plans to increase managed ROM production over the coming decade. For FY22, the company expects its ROM production from Maules Creek to be in the range of 12.1 to 12.5 million tonnes. In FY22, the company is also focused on debt reduction while maintaining shareholder returns.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last one month, the stock has corrected by ~27.69% and is trading above the average 52-week price level band of $1.100 and $3.64. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers, considering the rising coal prices, and modest outlook. For the purpose of valuation, peers such as New Hope Corporation Ltd (ASX: NHC), Coronado Global Resources Inc (ASX: CRN), Yancoal Australia Ltd (ASX: YAL), etc. have been considered. Considering the indicative upside in the valuation, rising coal prices, modest outlook, and focus on debt reduction and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.47 as on 10 November 2021, 03:23 PM (GMT+10), Sydney, Eastern Australia.

WHC Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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