I received the following question earlier this week and it spawned some thoughts on both companies which I thought I’d share. Since so many subscribers get access to me in various ways (Twitter, Discord, Substack, Email, etc.) I probably need to do more articles like this just to get my thoughts across to the broader audience. Anyway, here’s the question:
Regarding WHC, I'm curious why you see them doubling. At current prices I have them generating roughly 800m FCF before consideration payments (but ex-interest), so roughly 18% fcf yield. It's cheap but not $BTU and $HCC cheap. There will be no buybacks for the next 2-3 years unless they do mine sell down (that would be great). Also, they are vulnerable in H1'24 since they will be getting met cashflow only from May onwards. So this bout of bullishness given the uncertain thermal outlook is interesting.
From a technical perspective, Thungela under $500 is not good, as it's basically long term support. TGA recently flushed below $500 and is now trying to inch back up above it. The thermal markets are bad and will probably continue to deteriorate. That's not good for Thungela. On the other hand, Richards Bay Coal Terminal and Transnet have been making strides to improve logistics, which could be good for Thungela. I just don't see any point in catching a falling knife here tbh... At this point in the winter, we're basically preparing for Spring shoulder season in the Northern Hemisphere and stockpiles are already high - this does not bode well for the rest of 2024 re seaborne thermal coal. Thungela is cheap but you need all the wind at your back for it to work I think.
Thanks for the response 🙏 makes a lot of sense. As you say it is so cheap and even with the restricted cash on the BS it still has a lot vs market cap (but I suppose lots of coal names do) so feels like there is a buffer to wait it out. Was thinking along the lines of buy cheap hated things and see what happens but your commentary on thermal headwinds is very useful and likely tips it.
There's not play here from an energy perspective - yet - I think. You can't say US thermal coal, bc it might be too late for that. And you can't say natural gas, because the natgas producers just love to shoot themselves in the foot, and continually overproduce.
The only reason would be a short to medium term pop w/ the Elliott exit. I didn't really mention it in the article - and perhaps I should add an addendum - but the Elliott exit will make the Peabody buyback more impactful. This could actually give Peabody the edge in the short to medium term over Whitehaven.
Thank you for the analysis. I just took some profits on New Haven and moved to BTU. I plan to do the same with my Whitehaven position from a consolidation in my shipping profits. I take it you don't see any big changes in dividend policy on either while patience pays off in capgains??
Thanks for this analysis. I bought some WHC before the acquisition and was debating between more WHC or an initial position in BTU, as I have more cash to deploy.
I think BTU makes a bigger move in the next 1-3 months vs WHC, then WHC makes a bigger move thereafter, once they announce the sell down and get the BMA acquisition behind them.
Thanks, good info. Have you written up anything on Yancoal recently? You mention here being bearish thermal in general, but YAL still seems like it’s worth a look unless I’m missing something.
Yancoal's share price has been rallying while the underlying fundamentals in the thermal market have been deteriorating. They're up again overnight in Australia and I think I would probably take profits here if I was long - I'm not unfortunately (they've had a nice run). I need to do a deeper dive on YAL though, so if you think you have an edge being long here - go for it... I'm just an observer at the moment.
Regarding WHC, I'm curious why you see them doubling. At current prices I have them generating roughly 800m FCF before consideration payments (but ex-interest), so roughly 18% fcf yield. It's cheap but not $BTU and $HCC cheap. There will be no buybacks for the next 2-3 years unless they do mine sell down (that would be great). Also, they are vulnerable in H1'24 since they will be getting met cashflow only from May onwards. So this bout of bullishness given the uncertain thermal outlook is interesting.
Any view on Thungela at the moment?
From a technical perspective, Thungela under $500 is not good, as it's basically long term support. TGA recently flushed below $500 and is now trying to inch back up above it. The thermal markets are bad and will probably continue to deteriorate. That's not good for Thungela. On the other hand, Richards Bay Coal Terminal and Transnet have been making strides to improve logistics, which could be good for Thungela. I just don't see any point in catching a falling knife here tbh... At this point in the winter, we're basically preparing for Spring shoulder season in the Northern Hemisphere and stockpiles are already high - this does not bode well for the rest of 2024 re seaborne thermal coal. Thungela is cheap but you need all the wind at your back for it to work I think.
Thanks for the response 🙏 makes a lot of sense. As you say it is so cheap and even with the restricted cash on the BS it still has a lot vs market cap (but I suppose lots of coal names do) so feels like there is a buffer to wait it out. Was thinking along the lines of buy cheap hated things and see what happens but your commentary on thermal headwinds is very useful and likely tips it.
There’s a lot of attention lately given to the massive power consumption needs of AI data centers. https://apple.news/ASk22CmDQS1Cq3NrBp1dXAg
What do you think is the play here?
There's not play here from an energy perspective - yet - I think. You can't say US thermal coal, bc it might be too late for that. And you can't say natural gas, because the natgas producers just love to shoot themselves in the foot, and continually overproduce.
CT, any reason to own Peabody ahead of HCC and AMR? Share buyback starts to have a bigger impact soon? Low valuation? Thanks.
The only reason would be a short to medium term pop w/ the Elliott exit. I didn't really mention it in the article - and perhaps I should add an addendum - but the Elliott exit will make the Peabody buyback more impactful. This could actually give Peabody the edge in the short to medium term over Whitehaven.
Thank you for the analysis. I just took some profits on New Haven and moved to BTU. I plan to do the same with my Whitehaven position from a consolidation in my shipping profits. I take it you don't see any big changes in dividend policy on either while patience pays off in capgains??
No big changes, but the more you can allocate away from thermal, into met, the better. So I def prefer BTU & WHC vs NHC & YAL, for example.
Thanks for this analysis. I bought some WHC before the acquisition and was debating between more WHC or an initial position in BTU, as I have more cash to deploy.
I think BTU makes a bigger move in the next 1-3 months vs WHC, then WHC makes a bigger move thereafter, once they announce the sell down and get the BMA acquisition behind them.
Thanks, good info. Have you written up anything on Yancoal recently? You mention here being bearish thermal in general, but YAL still seems like it’s worth a look unless I’m missing something.
Yancoal's share price has been rallying while the underlying fundamentals in the thermal market have been deteriorating. They're up again overnight in Australia and I think I would probably take profits here if I was long - I'm not unfortunately (they've had a nice run). I need to do a deeper dive on YAL though, so if you think you have an edge being long here - go for it... I'm just an observer at the moment.