Whitehaven Coal Ltd (ASX: WHC)

Whitehaven Coal (WHC) is an Australian coal mining company primarily focused on the production and export of high-quality thermal and metallurgical coal.

Recommendation Rationale - SELL at AUD 6.99

• Market Fluctuations: Whitehaven Coal experienced softened metallurgical coal demand and prices in Q1 FY25 due to weak steel production in China and an extended Indian monsoon.
• Production Decline: Whitehaven Coal's NSW operations produced 4.4Mt of ROM coal in Q1 FY25, down 12% quarter-on-quarter due to planned overburden removal at Maules Creek and Tarrawonga.
• Revenue Decline: During FY24, revenue declined by 36.96% YoY to AUD 3.92 Bn.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples (EV/EBITDA, and Price/Earnings) are higher than the average Energy sector.
• Coal Price Volatility: WHC’s revenues are highly sensitive to global coal prices. Any significant drop in thermal or metallurgical coal prices—due to reduced demand from major importers like China or India—could impact earnings.
• Regulatory and Environmental Pressures: Increasing global focus on reducing carbon emissions, coupled with regulatory restrictions on coal production and use, could result in reduced demand or increased operational costs. As countries push for cleaner energy alternatives, this may accelerate a decline in demand for coal. 

WHC Daily Chart

(Source: REFINITIV; Analysis by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY Jun’25E) (Illustrative)

WHC is expected to trade at a slight discount due to a global shift towards renewable energy sources, increased regulations on carbon emissions, and annual revenue decline in FY24. For conducting the valuation, the following peers have been considered: Coronado Global Resources Inc (ASX: CRN), Regis Resources Ltd (ASX: RRL), and Stanmore Resources Ltd (ASX: SMR).

Considering the market uncertainties, volatile production, and risks associated, the share price can witness resistance at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 6.99, as of 4 November 2024, at 10:25 AM AEDT.             

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 4 November 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.