It could be a timely juncture for investors to sharpen their pencils and run the numbers on conglomerates Wesfarmers Ltd (ASX: WES) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
Thanks to their diversified portfolio of assets Wesfarmers and Soul Patts expose shareholders to a range of industries and provide more than one way for shareholders to profit; one of these exposures is to coal mining and hence coal prices.
According to a report in today's Australian Financial Review (AFR), Australian coal miners are expected to gain market share at the expense of high-cost producers in North America and Indonesia. Interestingly, Australian coal exporters already account for 64% of the seaborne coal market!
While the increasingly cost-competitive Australian coal is partially thanks to our weakening domestic currency, the AFR's article also pointed to cost cutting and lower oil prices as providing boosts as well.
Critically however, expectations are low for a rebound in the price of either metallurgical or thermal coal anytime soon.
With the price of met coal down from US$300 a tonne to around US$100 a tonne over the past three years and thermal coal down from about US$120 a tonne to US$60 a tonne over the same time frame, like their iron ore sector peers, coal companies have seen their valuations slashed. For example, the share price of New Hope Corporation Limited (ASX: NHC) – which is majority owned by Soul Patts – is down 60% over the last three years.
For investors endeavouring to uncover hidden investment opportunities, now could be a good time to analyse whether the coal market is at a low and what the long-term future outlook for coal prices is. Buying blue-chip stocks such as Wesfarmers or Soul Patts could be a clever way to reduce risk due to their diversified conglomerate structures, but at the same time gain exposure to a possible rebound in the coal price.
