Energy

Whitehaven to buy-back around 25% of issued shares

Wed 21 Sep 22, 3:47pm (AEST)
Coals
Source: Unsplash

Key Points

  • 9% of shares have been bought back for a total cost of $504.3m
  • Management is now looking for shareholder approval to acquire a whopping 240m shares in aggregate, or around 25% of issued shares
  • The group reported a record $2bn profit for FY22

Whitehaven Coal (ASX: WHC) was up around 5% after lunch to a record high – breaching $9 for the first time - following revelations that the group in on track to complete the first buy-back ahead of its next AGM.

Back in March the company told the market it was planning to buy back on-market up to 10% of shares over 12 months. 

While around 9% of shares have been bought back for a total cost of $504.3m the company will at its next AGM, scheduled for October 26, request approval for additional buy-backs.

More buy-backs in store

As of September 20 Whitehaven has purchased 93.5m shares for $504.3m, at an average price of $5.40.

However, management is now looking for shareholder approval to acquire a whopping 240m shares in aggregate, or around 25% of issued shares, under any on-market or off-market tender buyback for a 12-month period to October 26, 2023.

Today’s buy back revelations follow the group’s record $2bn profit for FY22 and strong outlook on the back of soaring coal prices.

Commenting on today’s announcement, CEO Paul Flynn told investors that share buy-back programme is an efficient way of returning capital to shareholders.

"With fewer shares on issue, the buy-back is improving return on equity, earnings per share and dividends per share at the same time that underlying earnings have grown substantially,” Flynn noted.

Potential spill motion

Buy-backs aside, what’s also likely to make Whitehaven’s AGM eventful is the risk of a second strike against executive payments, after receiving a first strike against its remuneration report in 2021.

A second strike will be registered if at least 25% of the votes at the AGM are cast against the report.

However, the board hopes shareholders will vote in favour of remuneration report resolutions which follows “material improvements" to its payment disclosures and changes to its pay structure, from both a fixed and variable remuneration perspective.

Lingering capex issues

Shareholders will again be asked to dismiss a motion by activist shareholder, Market Forces, to show how Whitehaven's capital expenditure and operations relating to coal assets will be managed in a manner consistent with global energy emissions reaching net zero by 2050.

Whitehaven has reminded shareholders that none of the Market Forces three previous requests for additional disclosures in relation to capital protection have been passed by shareholders.

"The board does not consider the best interests of shareholders would be served by limiting business strategy to a single scenario which is subject to considerable uncertainty,” the company noted.

What brokers think

Whitehaven Coal’s share price is up 218% in the last 12 months.

Consensus on Whitehaven is Moderate Buy.

Based on Morningstar’s fair value of $9.21 the stock appears to be undervalued.

While the outlook for near term FCF and shareholder returns remains positive, Goldman Sachs has downgraded Whitehaven to Neutral from Buy due to:

  • Now being more fairly valued: trading at 1.1xNAV ($7.37/sh) based on the broker's long-run thermal coal price of US$75/t (real $), and with the...

  • Thermal coal price likely to be lower in 12-months’ time.

Based on the six brokers that cover Whitehaven (as reported on by FN Arena) the stock is currently trading with 4.7% upside to the target price of $9.47.

Despite an 81% share price rally, since elevating Whitehaven to its most preferred stock late June, Morgan Stanley considers a further 30% rally, above the new $11.20 target, achievable.

image
Whitehaven Coal share price snapshot.

 

Written By

Mark Story

Writer

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. 

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