Coal markets remain difficult. Hence, Whitehaven Coal is being cautious about capital allocation, and expansion projects are unlikely to get going until well into 2021.
-Unlikely to be in positive earnings territory until FY23
-Cautious outlook for expansion projects
-Production in FY21 likely weighted to the first half
Several expansion projects need to progress along with a recovery in coal prices to provide
Shipments have lagged production and inventory rose significantly in the June quarter. Wilsons suggests consensus expectations heading into the June quarter were so low that just achieving key guidance parameters is considered a strong finish.
Morgans points out that around 30% of Australian thermal coal supply is cash negative at current prices. Moreover, customers hold abnormally high inventory through the traditionally weaker shoulder season.
While production cuts have been made, predominantly overseas, the broker suggests inventory will take some time to work through. More severe reductions in supply are required to cheap to trigger a genuine price response back towards
Credit Suisse expects strong production numbers will continue into FY21, but does not anticipate the company will be in positive earnings territory until FY23 and assumes no dividends until then as well.
The LNG glut continues to influence thermal coal prices, while softer electricity demand as a result of the pandemic has added to the pressure. A modest recovery in prices is expected in 2021 but there is a risk LNG is oversupplied into 2022.
There is also the risk developed nations continue to reduce coal usage. Credit Suisse maintains a long-term forecast of
Macquarie agrees there is significant downside risk at current prices and a loss scenario is likely for
This was the one blot on the company's copybook in the June quarter, Citi asserts, noting the company intends to resume such sales as soon as
Expansion Projects
Morgans believes the market will welcome the cautious approach to expansions, such as Vickery, as the inferred preference is for de-gearing. The broker expects the thermal coal side will be soft until there are material reductions in industry supply.
If the thermal coal market improves. The price of thermal coal is the sticking point and the broker suspects
Production
A record run of mine production was achieved in the June quarter at 8.2mt with sales of 5.7mt. This was largely driven by Narrabri and to a lesser extent
Morgans envisages compelling upside in the stock for value investors through the cycle while Wilsons, not one of the seven stockbrokers monitored daily on the FNArena database, has become more bullish on
A more normal production year is expected in FY21, with a weighting of production to the first half because of the upcoming longwall change out at Narrabri. Bushfire and drought comparables will also be cycled over the second and third quarters.
Goldman Sachs, also not one of the seven, retains a Neutral rating and assesses the stock is currently pricing in a flat rate for thermal coal of
The database has five Buy ratings, one Hold (
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