Whitehaven Coal Ltd.

WHC Details

Whitehaven Coal Ltd. (ASX: WHC)  is an Australia-based company that produces coal. The Company operates through two reportable segments: Open Cut Operations and Underground Operations. It operates approximately four mines in the Gunnedah Basin of New South Wales (NSW), such as Maules Creek mine, Narrabri mine, Tarrawonga mine and Werris Creek mine. Whitehaven Coal Limited was founded in 1999 and is headquartered in Sydney, Australia.

Financial Highlights for FY21: 30^th June 2021

• The Decline in Revenue: Revenue from ordinary activities stood at $1.56 billion, down by 9.6% as compared to the revenues of $1.72 billion in FY20, driven by the port and logistical disruptions, COVID 19 and other demand-related challenges.
• Underlying EBITDA from continuing operations stood positive at $204.5 million in FY21, witnessed a steep decline of 33% from FY20, resulting from the foreign currency impact of the decline in US dollar against the Australian Dollar and further from the geological challenges at Narrabri and both the production and coal quality.
• From Profit to Losses: The net loss after tax before significant items of $87.3 million for FY21 as compared to the net profit after tax of $30 million for FY20.
• Net Debt - The company has increased its net debt exposure to $808.5 million in FY21, a marginal increase of 2.7% from the debt of $787.5 million in FY20.

Financial Performance Highlights (Source: Company Report)

Operational Highlights for 4Q FY21: 30^th June 2021

• Drop-in Coal Sales: The Total Managed Coal sales for the quarter ending on 30^th June 2021, dropped by 21% to 4.5 MT as compared to the 5.7 MT for Q4 FY20 ending on June 2020.
• Coal Stock: The stock of Managed Coal Stocks for Q4 FY21 declined by 11% to 3.33 MT as compared to 3.75 MT YoY.

Asset Impairment for FY21: 30^th June 2021

• Narrabri ($548.7 million): The charge of $548.7 million and the post-tax charge of $384.1 million is the reflection of the reduction in the JORC coal reserves for the current Narrabri mining lease, developed to garner the production of top quality coal throughout the balance life of the mine.
• The charge levied at Werris Creek totalling $90.2 million and the post-tax charge of $64.7 million
• Rail Intangibles was charged $11.1 million and a post-tax charge of $7.8 million.

Key Risks:

The key risk with Whitehaven Coal Limited, is the rising COVID-19 severity in terms of the new Delta variant, sinking the demand for coal at the global level. Further, the lockdown and supply disruption also makes the export and import of coal unrealistic to various economies, incorporating the currency fluctuations hampering the bottom line.

Outlook:

Whitehaven Coal Ltd. shared the positive outlook on the recovering coal prices and further mentioned that both metallurgical and thermal segments have increased significantly from the lows and the GC NEW Index has tripled from the lows of US $48/t in August 2020 to approx. US $170/t in August 2021. Lastly, the high-quality CV thermal supply remains tight, and prices are forecasted to remain strong throughout CY21, CY22  and CY23.

Valuation Methodology: EV/ EBITDA multiple-based Relative Valuation (Illustrative)

Stock Recommendation:

The stock of WHC gave a return of ~+51.79% in the last three months and a return of ~+47.93% in the last six months. The stock is trading above the average of the 52-week low price of $0.83 and the 52-week high price of $2.43. On the technical front, the immediate resistance appears at the $2.56 level while support is at the $2.15 level. The leading indicator RSI (14-period) is trading at ~58.989 levels and forming a negative divergence with the price action. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in percentage terms). The company might trade at a slight premium to its peers’ average, considering the spread across clients, strong logistical support, and strong recovery in the coal market in FY21. For valuation, few peers like Ampol Ltd. (ASX: ALD), Santos Ltd. (ASX: STO), Senex Energy Ltd. (ASX: SXY), have been considered. Considering the organic and inorganic growth strategies and rising losses, Environmental, Social and Governance issues, volatile coal prices, the current trading levels, and downside potential as indicated by the valuation, we advise investors to book profit. We give a "Sell" rating on the stock at the price of $2.335, as of 26 August 2021, 12:49PM (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.

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