Shares of New Hope Corporation Limited (ASX: NHC) opened slightly stronger Tuesday morning following the release of its half-yearly results.
In the six months to 31 January 2015, the diversified coal, oil and gas company reported a net loss of $23.1 million, down from a profit of $22.6 million in the prior corresponding period.
Following the decision to diversify its traditional coal business into oil and gas, New Hope was forced to take a $58.5 million write-down on its oil and gas operating assets and investments in the wake of falling oil prices.
Excluding the write-off, however, underlying net profit after tax, or NPAT, was 51% higher at $34.2 million. Despite tough trading conditions within the coal industry, New Hope said operating performance was positively impacted by strong sales and production, a lower Australian dollar and production costs.
Operating cash flows increased 70% or $26.59 million, to $64.76 million. However, the company reported a net cash outflow of $28.7 million.
This included $45.7 million outflow for the payment of its interim dividend, which equated to four cents per share, fully franked.
New Hope's Managing Director, Shane Stephan, said, "This is a strong operating result at a time of continuing challenges for Australian coal producers. We have successfully managed our margins whilst simultaneously improving our safety performance, underlining the operational strength of the group."
With $31.8 million in cash and held to maturity investments totalling $1,076 million, Mr Stephan says the company is in a good position to take advantage of asset-level acquisition opportunities when they arise.
"Market conditions for Australian coal producers are challenging at present; however, New Hope has efficient operations and is in a robust financial position, so we are well placed to see out the current downturn and take advantage of these conditions to grow the business for the future," Mr Stephan said.
Should you buy New hope shares?
Looking ahead, New Hope said the short-term outlook for global coal markets remains challenging and realised prices are expected to be lower in the second half of 2015. However, a lower Australian dollar will partially offset the falling prices. It also expects coal sales of 5.8 million tonnes in the full year, down from 6.0 million tonnes last year, whilst production is expected to be at similar levels to those achieved in 2014.
However, despite the somewhat upbeat outlook, investors are advised to exercise caution before buying New Hope shares. Not only does the Chinese government's ongoing fight against pollution mean lower coal prices are likely here to stay, oil prices could continue to remain subdued for the foreseeable future. So although it may be a well-run business, now probably isn't the time to be investing in coal and oil producers.
