Whitehaven Coal Limited

WHC Details

Insights of 1HFY22: Whitehaven Coal Limited (ASX: WHC) is engaged in mining and exploration of coal. For the half-year ended 31 December 2021, the company reported a growth of 106% and 1,601% in revenue and EBITDA to $1,443.0 million and $632.6 million, respectively. The growth has been backed by an average achieved coal price of A$202/t for 1HFY22.

• WHC reported Cash from operations of $567.4 million and EBITDA margin of 55% on own coal sales.
• At on 31 December 2021, the company recorded net debt of $403.4 million, which 50% lower than on 30 June 2021.
• WHC has declared an interim unfranked dividend of 8 cents per share, and planning to undertake an on-market share buyback program up to 10% of issued shares, which has been capped at $400 million in total

Key Financial Highlights (Source: Analysis by Kalkine Group)

Key Risks: The company’s operational and financial performance could be impacted by adverse movement in spot prices of coal. In addition, the business could also be affected by extreme changes in weather, which could temporarily pause its operations.

Outlook: The company is on the way to repay its senior bank facility shortly and to be in a net cash position in March 2022. For FY22, the company expected to produce Managed ROM coal in the range of 19.0 – 20.5 Mt and managed coal sales in 17.2 – 17.8 Mt. The company expects to achieve a net cash position by March 2022 quarter.

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: The company is trading above its average of 52-weeks’ low and high of $1.152 and $3.640, respectively. The stock has provided ~26.80% and ~34.84% returns in the past three months and six months, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the high volatility in spot coal price and inefficiency of business to generate profits. For valuation, peers such as Coronado Global Resources Inc (ASX: CRN), New Hope Corporation Ltd (ASX: NHC), and Yancoal Australia Ltd (ASX: YAL), and others have been considered. Given the expected correction, potential volatility in coal prices, unfavourable bottom line, decent rally in the past few months, current trading levels, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $3.240, as on 17 February 2022, 10:30 AM (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 for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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