The Whitehaven share price has surged 36% in a month. Why Morgans predicts more 'supercharged returns'

This coal miner shone in August. What's going to happen next?

| More on:
Two boys play outside on an old army tank.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Whitehaven share price has by far outperformed the ASX 200 in the last month
  • It's benefitting from record coal prices amid global demand for energy
  • Experts are expecting another big year of profit and dividends in FY23

The Whitehaven Coal Ltd (ASX: WHC) share price has been a top performer in the past month, rising 36.5%.

It has significantly outperformed the S&P/ASX 200 Index (ASX: XJO), which has fallen by 1.76% over the same time.

What has caused such a big outperformance by Whitehaven shares?

With energy prices soaring around the world, coal is benefitting as countries try to keep their energy grids powered. This includes using more coal.

The ASX coal share recently reported its FY22 result, which showed how much the company is benefitting.

FY22 earnings recap

In the 12 months to 30 June 2022, the coal miner generated record revenue of $4.9 billion (up 216%) thanks to an average coal price of AU$325 per tonne. This compares to $1.56 billion revenue and an AU$95 per tonne average price in FY21.

Its earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed by 1,396% to $3.06 billion.

Whitehaven made $1.95 billion of net profit after tax (NPAT). This compares to an underlying net loss of $87.3 million in FY21.

Operating cash flow soared 1,423% to $2.58 billion.

The ASX share has also been carrying out an on-market share buyback worth $550 million. The Whitehaven board will seek shareholder approval to increase the buyback at the company's annual general meeting (AGM) in October.

It also decided to pay a final, fully-franked dividend of 40 cents per share. At the current Whitehaven share price, that dividend alone represents a grossed-up dividend yield of 7.2%.

The FY22 dividends and share buyback represent a total payout ratio of 51% of FY22 net profit, in line with the company's policy.

Why are coal prices so high?

Whitehaven CEO and managing director Paul Flynn explained:

The longer-term under-investment in energy sources needed to supply baseload capacity to growing populations and economies has contributed to a widening gap between supply and demand. In FY22, we saw global energy shortages intensify as a result of the tragic conflict in Ukraine and associated sanctions against Russian coal and gas.

Coal prices are at record levels and customers are focused on energy security now more than ever before.

Demand for high-quality seaborne thermal coal is expected to remain strong throughout FY23 and high-CV coal prices should continue to be well supported.

To take advantage of this, Whitehaven expects to deliver higher production and coal sales in FY23 compared to FY22.

The company noted:

It is likely to take several years before additional supply or alternative energy sources are available to rebalance global supply and demand dynamics. Throughout the coming multi-decade energy transition reliable baseload fuels will be required. This will underpin continued demand for coal and, in particular, for the high-CV coal Whitehaven produces on account of its higher energy content and lower emissions profile relative to other coal products.

Broker confident about the Whitehaven share price

As first noted by my colleague James Mickleboro, the broker Morgans thinks that the high coal price will lead to "supercharged returns" for shareholders.

The broker has an add rating on the Whitehaven share price, with a target of $8.60. That suggests a possible rise of close to 10% over the next 12 months. It thinks there is "strong potential for a more prolonged dislocation in energy markets where supply security commands a higher premium for longer".

With Whitehaven making profits and returning to paying fully franked dividends, it could pay a grossed-up dividend yield of 14.5% in FY23 and 11.5% in FY24, according to Morgans.

Based on the profit expectations, Morgans values Whitehaven shares at 3x FY23's estimated earnings and 7x FY24's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Resources Shares

Female miner smiling at a mine site.
Resources Shares

Up 60% this year, this ASX 200 mining stock just smashed production records

Production surge headlines quarterly results.

Read more »

a man in a hard hat and high visibility vest smiles as he stands in the foreground of heavy mining equipment on a mine site.
Resources Shares

After lifting its price target, Macquarie now expects 36% upside from this ASX mining stock

The precious metals producer released better-than-expected production guidance.

Read more »

A miner in a hardhat and high visibility clothing makes a thumbs up symbol.
Resources Shares

4 reasons to buy Rio Tinto shares today

A leading expert forecasts strong growth potential for Rio Tinto shares.

Read more »

Man with rocket wings which have flames coming out of them.
Resources Shares

Why Macquarie expects this ASX All Ords copper stock could surge 38%

With costs coming in below expectations, this ASX All Ords copper stock could rocket higher over the coming months.

Read more »

Iron ore price Vale dam collapse ASX shares iron ore, iron ore australia, iron ore price, commodity price,
Resources Shares

Major miners up as China announces new mega project

Can a new mega-dam absorb iron ore oversupply?

Read more »

A young man sits at his desk with a laptop and documents with a gas heater visible behind him as though he is considering the information in front of him. about the BHP share price
Broker Notes

Leading broker has just downgraded BHP shares. Is it time to sell?

Macquarie sees little upside. But why?

Read more »

A young woman wearing a blue blouse with white polkadots holds her phone up with an intrigued and happy look on her face as she reads some news.
Resources Shares

3 reasons why the BHP share price could be a buy

Here are my optimistic thoughts on BHP.

Read more »

mining asx shares represented by miner writing report on clipboard
Resources Shares

This ASX 200 miner is ramping up copper output as prices reach all-time highs

Copper production leads quarterly update.

Read more »