Following first half results for New Hope, brokers focused not only on the surprise special dividend but also on prospects for future distributions.
-New Hope's first half dividend was 76% above the consensus estimate
-Realised thermal coal prices rose materially and free cash flow exceeded expectations
-Management expects more regular special dividends
As first half results for
The company produces thermal coal from its 80%-owned Bengalla open cut mine in the
Thermal coal prices have increased materially from
Macquarie points out the current share price is only pricing-in a thermal coal price of
First half earnings of
A highlight was stronger-than-expected operating cash flow and lower capital expenditure which resulted in free cash flow of
This cash flow outcome, along with an extraordinarily strong second half cash flow outlook, according to Morgans, led to the surprise 13cps fully franked special dividend. The 17cps fully franked ordinary dividend was considered in-line.
Realised prices
New Hope achieved an average selling price of
Macquarie points out the company currently sells 75% of its coal at index-linked prices. However, the balance is dictated by domestic fixed-price contracts or is linked to the Japanese reference price. As a result of these arrangements, realised prices will be materially lower than spot-price averages.
While the broker maintains its Outperform rating, its target price falls by -10% to
Capital Management generally
Morgans expects New Hope will retain more cash for acquisition firepower/flexibility and to assist with debt re-financing, as a secured loan facility is due in
Management aims to distribute special dividends 'on a more regular basis", which leads Citi to conclude dividend returns may be preferred over M&A in the short term.
Dividends specifically
Citi notes the aggregate dividend of 30cps for the first half represents an 83% payout ratio. Assuming the ratio stays around that level, the broker's forecast dividend yield for FY22 and FY23 is 22% and 17%, respectively.
While Morgans estimates 27cps will be available as a second half dividend, there is upside potential should coal prices exceed current forecasts. The broker raises its target price to
Meanwhile, even after putting aside
The broker maintains an Outperform rating and increases its target price to
Share price upside
Given the quasi-embargo on Russian products, and as Indonesian sub-bituminous coal is not a direct substitute, Credit Suisse feels a premium price north of
Applying the current spot price of
Given very attractive sector returns, Morgans sees the potential for a wider range of investors and points to the role of thermal coal in bolstering energy security amid current volatility.
Overall, FNArena's database has four broker ratings each with a Buy recommendation and a consensus target price of
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