Investors appear to be factoring-in another massive buyback by Whitehaven ahead of next Wednesday’s AGM

AGM season, which for the most part has been a fairly luck lustre affair, should liven up next Wednesday when cashed-up Whitehaven Coal (ASX: WHC) asks shareholders to vote in favour of Australia's major thermal coal exporter buying another 240m shares via an on or off-market tender by October 26, 2023.

Having amassed a warchest of $1.9bn, the company’s decision to flag another massive buyback – worth a whopping 25% of issued shares – coincides with the recent completion of its initial 10% share buy-back.

A total of 103.3m shares have already been bought back at an average price of $5.69 per share for a total cost of $587.9m.

This $587.9m of capital returned through the share buyback together with $449m of dividends paid (48 cents per share) to shareholders in FY22, represents a total of $1.04bn of capital returned to shareholders.

Done deal?

With Whitehaven’s share price up around 5% in early afternoon trade, the market appears have concluded that next buyback is already a done deal.

Buyback announcements typically result in share price increases because after the buyback a company’s profit will be spread across fewer shares.

Equally important, buybacks also signal to the market that the company feels its shares are undervalued.

$14.00 is the upper range of broker price targets

While some brokers believe Whitehaven’s share price will now struggle to hit $11.00 – after rallying 252% over 12 months – Macquarie, Credit Suisse and Morgan Stanley – all Outperform rated – have target prices of $14.00, $12.30 and 11.55 respectively.

While compositionally, Maules Creek volumes are tracking towards the lower end of guidance, Macquarie notes Narrabri looks to exceed guidance range. 

With wet weather creating havoc at some sites, Whitehaven’s September-quarter production and sales fell -23% and -17%.

While the September quarter result fell short of Credit Suisse's forecasts, the broker notes the quality of its coal mix improved after the longwall step around, more than offsetting the production dip.

By comparison, Citi adjusts earnings per share for the additional (240m) buyback by -12% in FY23 and -31% in FY24 and maintains a Sell rating while the target is adjusted to $8.50 from $8.30.

Second strike

Buybacks aside, what’s also heightening investor interest in Whitehaven’s AGM next Wednesday in the prospect of a second strike against its remuneration report, which could lead to a potential board spill.

Given that this is the fourth successive attempt by activist investor, Market Forces, to seek a vote on forcing the business to link its climate goals closely to capex and operations guidance, it is unlikely to get over the line.

Time will tell.

Whitehaven Coal's share price over 12 months.