Washington H. Soul Pattinson and Company Limited

Best on Record Regular Profit:Washington H. Soul Pattinson and Company Limited (ASX: SOL) is primarily engaged in mining of coal, gold and copper.

Change in Director’s Interest: The company recently updated that Robert Gordon Westphal, one of the directors, acquired and disposed 5,000 and 10,000 ordinary shares respectively via off-market transfer.

1HFY19 Performance: During the half-year ended 31 January 2019, the company reported a regular profit after tax amounting to $186.7 million, up 12.2% on prior corresponding period. Statutory profit after tax was reported at $179.2 million, up 22.6% in comparison to the prior corresponding period. The pre-tax net asset value of the company was reported at $6.0 billion, up 10.2% on prior corresponding period.


1HFY19 Performance (Source: Company Reports)

The company’s net regular cash from operations stood at $92.0 million, displaying a rise of 24.8% on prior corresponding period. During the period, the company also declared a fully franked interim dividend of 24 cents, up 4.3% on prior corresponding period, representing an increase in the interim dividend for the 21^st straight year.

Factors Contributing to Profit Growth: The increase in regular profit during the first half was attributable to increased contribution from a number of investments including, New Hope Corporation and Brickworks. New Hope Corporation witnessed a growth of 27.3% as a result of high coal prices and increased volumes from Bengalla. In the case of Brickworks, strong property earnings led to growth of 73.7%.

Outlook: The company expects continued positive performance of thermal coal, telecommunications subscriptions and property.In addition, the company has the capacity to grab new investment opportunities and, in turn, drive shareholder returns. The company also expects its portfolio to deliver continued growth that increased by 10.2% during the first half.

Stock Recommendation: The stock of the company generated negative returns of 11.23% and 10.00% for one month and three months, respectively. During 1H19, the company recorded the highest ever first-half regular profit and a 10.2% increase in the portfolio at $554 million. One-year returns to shareholders were also a highlight with a 56.5% increase in returns for the year ended 31 January 2019, as compared to All Ordinaries Accumulation Index Increase of 0.7%. However, the company is sensing some early warning signs with respect to consumer sentiment and economic activity. Moreover, absence of any financial guidance and the Management’s apprehension related to weak economic activity lead us to take a watch stance on the stock at the current market price of $20.540, up 0.489% on 29 August 2019, and we suggest investors to wait for few more catalyst which may drive the stock.
 

Yancoal Australia Limited

EBITDA Falls as a Result of Increased Costs:Yancoal Australia Limited (ASX: YAL) operated as a producer of metallurgical and thermal coal.

1H19 Highlights: During the six months ended 30 June 2019, the company generated profit before tax amounting to $492 million, down $47 million on prior corresponding period. Total operating EBITDA for the period was reported at $940 million, down from the prior corresponding period value of $980 million. Operating EBITDA margin for the period stood at 40%. 1H19 revenue from continuing operations was consistent with pcp revenue of $2,350 million. During the period, the company also improved on its corporate gearing ratio, from 34.6% in 1HFY18 to 32.5% in 1HFY19. The Board of Directors declared an interim dividend amounting to $136.7 million, as compared to $130 million in prior corresponding period.

Operational Highlights: Total saleable coal production during the period stood at 26.4 million tonnes on 100% basis, as compared to 25.4 million tonnes in 1H18. Production of 17.8 million tonnes was attributable to Yancoal, against prior corresponding period production of 16.4 million tonnes. At the end of the period, Total Recordable Injury Frequency Rates stood at 7.29 (12-month rolling average), as compared to 8.89 at the end of 1HFY18. During the half, the company made an early debt repayment of US$500 million, in addition to US$750 million paid in 2018.


Net Debt and Leverage Ratio (Source: Company Reports)

Guidance: In FY19, the company expects to achieve saleable coal production of around 35 million tonnes. Cash costs for the year are expected to be around A$62.50 per tonne. The company also provided guidance for a capital expenditure amounting approximately A$285 million. Dividend payout ratio is expected to be 50% of net profit after tax, after adjustment of any non-operating items and foreign exchange hedge reserve movements.

Stock Recommendation: The stock of the company generated negative returns of 24.23% in the last of 6 months. During the first half, the company progressed towards developing growth projects. Profit of the company increased sharply in the last two years. Realised price in the latter months of the first half were impacted by market conditions, including pressure on thermal coal prices and reduction of premium for higher-energy thermal coal. EBITDA in the first half was lower than pcp due to increase in costs with increased production and flat revenues. Given the backdrop of the above factors, we suggest investor to keep a close watch on the stock at the current market price of $3.000, down 2.28% on 29 August 2019.

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