The Coal producer reported a big decline in 1H24 earnings yesterday, which was to be expected given the significant pullback in Coal prices over the past year, and they think Thermal Coal, used in power generation, will stay around these sorts of levels ($US120-130/tonne) on average over the longer term, but with plenty of price spikes along the way. The world is rightly moving towards net zero, and coal, specifically the stuff used to generate power, has a finite life span; however, we believe that life span will last longer than some think. One of the easiest wins globally for emission reduction is for lower-quality Thermal coal to be subbed out for a higher-quality, lower-emission product, such as the product produced by New Hope.
Despite the challenging period, NHC produced $251.7m of net profit for the half and declared a 17cps fully franked dividend, both mildly ahead of consensus expectations. NHC offers excellent value for income-focused investors on a forward PE of 7x and a yield of 8% fully franked (11.4% inclusive of franking). However, our ~4% weighting in the Active Income Portfolio is on the smaller side, given this is a commodity-linked income investment and, therefore, will have greater volatility than some other portfolio holdings where weightings will be higher.
MM remains bullish and long NHC ~$4.60
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