New Hope doubles earnings, now wants to double coal production: Two brokers give their take

Coal miners are caught between a rock and a hard place as FY23 earnings are set to pull back sharply to reflect the recent decline in spot prices.

Newcastle coal prices are currently trading at US$174 a tonne, down around 62% from September 2022 highs of US$460 a tonne. But that’s a problem for future earnings.

Newcastle coal futures (Source: TradingView)

New Hope (ASX: NHC) posted its half-year FY23 result on Tuesday, which showed another strong year-on-year increase in earnings and cash flow. Some key highlights for the six months ended 31 January 2023 include:

• Revenue of $1.58 billion, up 54.2%

• Profit after tax of $668 million, up 102%

• Total tonnes sold of 3.4 million tonnes, down 34%

• Average sales price achieved of $467.4 a tonne, up 143%

• Underlying FOB cash cost of $154.6 a tonne, up 78%  

• Interim dividend of 30 cents per share plus a 10 cents per share special dividend

• Cash and cash equivalents of $971.2 million, up 89%

New Hope shares rallied 8.6% on Tuesday and are currently down 6.4% year-to-date.

New Hope 12-month price chart (Source: Market Index)

Two broker notes: Two opposing views 

Goldman Sachs: ‘Strong result but weak dividend’

Goldman said the result was largely in line with expectations but the dividend was 23% lower than what was expected, inclusive of the special dividend.

“While thermal coal prices have retreated in 2HFY23, NHC has flagged expansion opportunities via New Acland Stage 3, lift in volumes at Bengalla and first volumes from Malabar,” said Goldman.

To summarise the above production growth:

• New Acland Stage 3: First mining is expected to begin late FY23 and ramp up from less than 0.5 million tonnes per annum to more than 5.0mtpa by 2026

• Bengalla: Adverse weather impacted approximately 1m tonnes of production in 2022-23. Production is expected to gradually improve back to 10-11Mtpa from 8-9Mtpa 

• Malabar (15% stake): Is targeting up to 6.5Mtpa of coking coal

Goldman Sachs forecasts adjusted FY23 profit to come in at $1.66bn, up 69% year-on-year. A recovery in thermal coal prices and organic production growth is expected to keep profits high at $1.74bn in FY24 before easing to $1.1bn in FY25.

An OUTPERFORM rating was retained with a $6.00 target price.

Citi: In-line and growth opportunities on track

New Hope’s half-year result was mostly in-line with Citi’s estimates. Some key areas to note were:

• The total dividend of 40 cents per share surprised to the downside

• The dividend implies a 54% payout ratio vs. estimates of approximately 70%

• Balance sheet was net cash of $811 million, above estimates of $779 million

A NEUTRAL rating was retained but the stock’s target price was lowered to $4.80 from $4.90.