Has Whitehaven’s share price entered a downward spiral?

While Whitehaven Coal’s (ASX: WHC) share price has risen 200% in the last 12 months courtesy of record prices – with the benchmark Newcastle Monthly coal price now around US$400 per tonne - the coal-play’s winning innings seems to have hit a sticky wicket with the share price having fallen -7% from a high of $10.96 to $10.29 since last Friday.

Down -1.63% in early afternoon trade, Whitehaven has oversold the fall on the S&P/ASX 200 Energy Index of -1.01%.

Other coalminers also trading lower this afternoon included:

• New Hope Corp (ASX: NHC) down -1.19%

• Yancoal Australia (ASX: YAL) down -0.49%

• Stanmore Resources (ASX: SMR) down -1.18%

• Coronado Global Resources (ASX: CRN) down -0.51%.

Concerns over thermal coal prices

While Macquarie, Morgan Stanley, and Credit Suisse all expect Whitehaven to crack the $11 barrier over the next 12 months – with Macquarie expecting the price to hit $12 - Citi has taken a decidedly contrarian view.

The broker has downgraded the coalminer to Sell (price target $8.30).

Citi’s downgrade to Sell follows the broker’s downgrade to Neutral from Buy late August on the back of concerns over thermal coal prices moderating with costs simultaneously rising amid plans to stoke up capex.

Whitehaven benefitted from a record realised coal price of $325 a tonne in FY22, and with Europe’s energy crisis expected to continue, Macquarie’s 2023-27 price estimates rise by 38-114%.

However, not all analysts agree.

Downward pressure from China

ANZ (ASX: ANZ) suspect Europe’s energy crisis may encourage power utilities to switch from gas to coal, which – together with the exclusion of large quantities of Russian coal - could heighten competition for seaborne coal.

However, the bank’s analysts also point to downward pressure on the commodity’s value courtesy of increasing Chinese production.

Early October the Federal Industry Department (FID) quarterly resources expected:

• Thermal coal to rise from US$245 a tonne in FY22 to US$309 a tonne in FY23

• Met coal price to drop from US$404 per tonne in FY22 to US$283 per tonne in FY23

According to forecasts within the FID report, the thermal coal export value will lift nearly 35% from $46bn in FY22 to $62bn in FY23, while the met coal export value is expected to decrease -12% from $66bn to $58bn.

The report also notes Australian thermal coal prices remain extremely high, as European nations look to build stockpiles ahead of the Northern Hemisphere winter.

Whitehaven’s full year FY22 result

Late August Whitehaven posted FY22 Earnings (EBITDA) up 1,396% year-on-year to $3.06bn, on revenue of $4.92bn up 216% YoY.

Record net profit after tax (NPAT) of $1.95bn, was up from a $543.9m loss in FY21.

A fully franked dividend of 40 cents per share (CPS) took the full-year dividend to 48 cps.

During the year Whitehaven bought back 76.37m shares, or around 7% of its shares outstanding, for a total value of $362.6m, and in FY23 is planning to complete its commitment to buy back 10% of its shares within the cap of $550m.

What other brokers think

Consensus on Whitehaven is Strong Buy.

Based on Morningstar’s fair value of $11.53 the stock appears to be undervalued.

Goldman Sachs is Neutral rated on Whitehaven (target price $9.60) and cites weakening European demand.

Higher short and long-term thermal price forecasts drive Morgan Stanley’s EPS forecasts higher on Whitehaven.

The broker is overweight on Whitehaven and despite a major share price rally, believes a further rally above the new $11.20 target is achievable.

Morgan Stanley forecasts a full year FY23 dividend of 85.00 cents and EPS of 423.00 cents.

Credit Suisse has materially upgraded thermal coal price forecasts 14-50% between 2022-2026, seeing no signs of the energy crisis declining.

The broker has an Outperform rating (target price increases to $11.20 from $8.90) and suspects Whitehaven may issue buybacks of $1.1bn in FY23, alongside a 10% dividend yield.

The broker expects cash to strengthen to $6bn by the end of FY25. 

Whitehaven Coal share price over 12 months.