If coal prices normalise to the high end of the pre-CoVID range (US$120p/t thermal & US$134p/t blended met price, the incentive price for the Blackwater/Daunia acquisition), then WHC generates A$525m FCF assuming AUDUSD of 0.667. It would make a pretty ho-hum investment on its currently smashed market cap of $5.45bn - over 10x P/FCF for a coal stock. It would also imply a 15x P/E multiple on the Blackwater/Daunia acquisition, which would just be more proof of value destructive M&A among ASX large caps.
But what if the Ukraine war ends? Coal prices might revert to a pre-CoVID norm of U$100p/t as Russian gas is turned back on and coal rail shipments renew, averting the continued destruction of Germany's economy. This would be a breakeven operational price for Whitehaven, which is probably too pessimistic. However the equilibrium price might very well settle below the above scenario that implies a 10x P/FCF valuation.
The price action of WHC, SMR, YAL and US coal stocks like AMR suggest lower coal prices are coming. WHC and others have had years to re-rate to a higher multiple, but haven't. Inflation and the Ukraine war drove coal prices to bubble highs, and both factors might soon be history.
WHC Price at posting:
$6.52 Sentiment: Sell Disclosure: Not Held
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