NHC reported FY23 results yesterday that were very solid, headlined by a 15% increase in underlying earnings to $1.63bn and a 30cps fully franked dividend for the 2H, meaning they will pay 70cps for the full year (including 19c worth of special dividends), equating to a yield of 12.4% on our original buy price ($5.62) in the Income Portfolio – grossed for franking, this equates to 17.7% – and they say don’t buy resources for income!
New Hope is ultimately delivering for investors, generating significant cash flows and passing those back to investors in the form of dividends, which is pushing the shares higher. Whitehaven (WHC) on the other hand, prioritised share buy-backs and now seems to be venturing down the M&A path, which is a higher-risk strategy. For now, investors have clearly had a preference for NHC’s strategy leading to significant outperformance over WHC.
- This puts NHC on a valuation premium vs. WHC, trading on 9.28x FY24 consensus earnings while WHC trades on 7.05x FY24 consensus.
We believe the premium is justified given the current uncertainty washing through WHC against the simple strategy being employed at NHC. However, it’s very important to recognise that FY23 is likely to be an anomaly in terms of income, that earnings and therefore, dividends will be lower in FY24-25, putting it on an expected yield of around 6.5% fully franked.
- NHC do have a growing production profile, which is close to doubling over the next three years through organic growth, while they said future capital management will include fully franked dividends, on-market buybacks and other capital returns
MM remains bullish NHC for Income but prefers WHC for Growth
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