Whitehaven Coal Limited

WHC Details

Business Update: Whitehaven Coal Limited (ASX: WHC) is engaged in the development and operation of coal mines in New South Wales and Queensland. The market capitalisation of the company as on 17 December 2020, stood at ~$1.69 billion. As per a recent update, the company has released its maiden reserves statement for the Winchester South Project metallurgical coal mine.

September 2020 Quarter Update: WHC reported decent September 2020 quarter coal sales figures. Total managed coal sales were up by 13% to 6.0Mt, when compared to pcp. It delivered managed saleable coal production of ~4.9Mt, an increase of 2% on pcp. The managed coal stocks as on 30 September 2020, stood at 1.8Mt. The company                realised an average price of US$52/t for the sale of its own thermal coal, which was in line with the globalCoal Newcastle Index price, during the September 2020 quarter.

Managed Totals from Continuing Operations (Source: Company Reports)

Outlook: Despite the COVID-19 headwinds, the company has reported decent September 2020 quarter sales, on the back of demand from customers in Asia. In view of the present scenario, WHC will continue to look for cost-saving initiatives and move ahead with the development projects. It expects the FY21 unit cost range to be in the range of $69 - $72/t.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: WHC had reported decent operating performance, despite the challenging business environment owing to COVID-19. The company expects demand for coal to go up further, as the economies begin to function in pre-COVID levels. As per ASX, the stock of WHC gave a return of 79.77% in the past three months and a return of 21.96% in the past one month. As per ASX, the stock of WHC is trading below its average 52 weeks’ trading range of $0.830-$2.730, proffering a decent opportunity for the investors to enter the stock. On a technical front, the stock of WHC has a support level of $1.238 and a resistance level of $1.985. We have valued the stock using a P/CF multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Alumina Limited (ASX: AWC), BHP Group Limited (ASX: BHP), OZ Minerals Limited (ASX: OZL), to name a few. Considering the current trading levels, strong operating performance, increasing demand for the product and decent outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $1.555, down by 5.183% as on December 17, 2020.

WHC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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