Thoughts on WHC and BCB

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Question asked 03/08/2024

Thoughts on WHC and BCB

Hi James, Q1: - WHC - The coal sector seems to be running reasonably hot with increasing acknowledgement that it’s going to need to be part of the energy equation for longer than originally expected. WHC’s share price seems to be lagging. Given market’s are forward looking, I’d have expected that the market would be anticipating a strong up coming qtr / FY25. What do you see as the reason for the drag on the SP and what sort of price movement would you expect to see over the coming 6 months? Q2: - BCB – Was the recent Qtrly better or worse than you expected, and do you think they can trade their way out of the past difficulties? It seems like their run rate has shown a turn around, but obviously, they’ll need to move into profit and re-structure some of the debt? Thanks

Answer

Hi Phillip,

We feel that WHC is struggling on a few fronts:

Their recent purchase of BHP’s coal assets has led suspension of buybacks and chunky dividends, some short-term pain which we believe will prove worthwhile over time.
Cost pressures remain, which is true right across the resources sector, and we think this could actually feed into slightly weaker financial results this time around, particularly given the focus on a large acquisition during the period.
The coal price has been under pressure for more than a year as Chinas economy continues struggle under the weight of a burst property bubble.

The next 6-months is hard to call but medium term we are bullish.

We have existed and taken our medicine on BCB a few weeks ago. The June quarter production numbers did show progress, and they’re now at 100% production from Ellensfield South which will obviously help revenue come in the door, however, Coal prices have softened during the period and with cash of $20m, it’s simply too low for the working capital requirements of the business – they need to do something about their balance sheet, it’s not sustainable in our view, which is ultimately why we cut our position.

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Whitehaven Coal Ltd (WHC)

LAST UPDATED 02/08/2024 18:02

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