The Whitehaven Coal Limited (ASX: WHC) share price is taking a beating despite a seemingly positive 1H19 profit report.
Whitehaven Coal is Australia’s leading producer of premium thermal and metallurgical coal and has mines throughout New South Wales that employ over 1,700 people.
The Five Key Points To Whitehaven’s Report
- Sales revenue up 11% to $1,270.1 million
- Underlying EBITDA up 12% to $550.8 million
- Record net profit (NPAT) of $305.8 million, up 19%
- Net debt reduced to $244.2 million
- Proposal to pay a dividend of 20 cents per share, unfranked
Analyst Targets
According to Bell Potter, the consensus analyst target for Whitehaven’s net profit was $335 million. Despite the strong growth reported, Whitehaven were unable to meet the expectations of analysts and investors, falling short by almost $30 million.
Management Commentary
Whitehaven Coal’s Chief Executive Officer and Managing Director Paul Flynn highlighted the record net profit of the company, stating, “I’m pleased to report a record half year financial result and an interim dividend for shareholders which takes the total shareholder return over the past 18 months to 80 cents per share, or almost $800 million.”
He also noted that this result was achieved despite rising costs for the business.
“Importantly, we have achieved this result in spite of higher, but moderating costs, underscoring the resilience of the business as it continues to grow in scale across two of Australia’s highest quality coal basins.”
Looking ahead, Mr Flynn remained positive about the future prospects of the business, highlighting two key regions for growth.
“With first-rate development assets in our Vickery and Winchester South projects, we are strongly positioned to meet the wave of demand for quality thermal and metallurgical coal we are seeing in the region.”
Why the Drop in WHC’s Share Price?
As mentioned, Whitehaven failed to meet analyst targets by a fair margin. The cause of this seems to be rising costs in the business, attributed to higher diesel prices, higher logistic costs, increased coal washing and, “lower production from the low-cost mines.”
Combined, these factors have seen the unit cost increase to $69 per tonne, up from $57 per tonne in 1H18.
On top of that, the increase in revenue and NPAT masks the decrease in actual sales volumes from 9.2Mt to 8.2Mt.
My Take
At first glance, the HY earnings report looks positive with record revenue and NPAT. But the truth of rising costs and decreasing sales does not provide a positive outlook for the future. Profits are higher partially due to foreign exchange rates, a factor entirely out of Whitehaven’s control. For me, there’s not enough stability for me to want to invest.
For another point of view on Whitehaven Coal and a run-down of some of the positive features of the company, check out this Rask Media article.
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