It seems that Australia has provided Germany with 14% of its coal imports over the last 10 months. It is no wonder they are so eager to push ahead with the latest coal mine expansion. Despite the climate concerns, Germanys coal consumption is up 11.7% on 2021 levels.
For those that think COVID is a thing of the past, it seems that it isn't. Until China comes out of the pandemic economically, we really haven't seen the end of it. Their economy is not operating at the same level as pre COVID. Until it does, we won't see the full scale of fossil fuel demand. Their strategic lift of the Australian coal import ban may indicate that they foresee increased demand since lifting COVID lockdowns in December.
Here we have a coal boiler manufacturer possibly going out of business. With decreased investment in coal power plant financing, we may be looking at a shortage of manufacturers for coal power plant equipment.
Renewables, the biggest scam in history, may soon be exposed as not really being able to provide what the environmentalists would have us think. This is leading to more coal consumption at a rapid and frantic rate, Indias import volumes may rise as a result.
It would seem that India is also set to subsidise the coal industry due to hefty, imported coal prices. If the government does this, import of coal will become more attractive. The subsidised coal will benefit the economy so the government will likely not lose out on much. Coal power plant subsidies are becoming a global trend, for those who are keeping up with the news, you may remember that the WA government recently provided cash to a coal power plant to keep it running.
One thing I forgot to mention in my previous post regarding WHCs pay-out policy is the effect on the share price if they decided to pay-out some $3.50 in dividends this coming HY announcement. At that pay-out level they could be call it "capital return", similar to what Boral did early 2022. This would likely cause the SP to drop significantly as all that cash is taken out. This would benefit shareholders in two ways. One, a large fully franked payment that uses locked up franking credits and two, it will reduce the SP considerably which allows the ongoing buyback to buy more shares for less, effectively leaving more cash into the company for future returns.
The more I think of it, the more adamant I am that this is what they should do. With a $1 Billion dollar loan facility and continuing after tax earnings of ~$500 - $600 Million per month, the argument of "economic downturn cushion" for all that cash retention is well and good if there is around $500M in cash. But this excuse, in my view, does not fly with $3 Billion just lying around getting chewed up by inflation. Pay it out, see the SP drop, and let investors decide whether to reinvest that back into the business while simultaneously scooping up cheap shares through the buy back.
For reference, $500 Million is a huge pile of cash in the bank for a company like WHC, in FY20 and FY21 there was ~$100 million cash in the bank with ~$900 million in debt and they came through just fine. Now there is no debt, so why horde all that money?
The only counter argument I can think of is that it may be seen as "SP manipulation", which is rubbish. The company is set up for the benefit of shareholders and ought to pay-out as much cash as possible to shareholders. That is their whole purpose. If high dividend pay-outs are SP manipulation than a 25% buyback is definitely SP manipulation. We may as well rewrite corporate law while we are at it.
I'm open to a discussion on this, and hope that management sees it this way too. If not, I can foresee some tough questions being asked at the next AGM.
WHC Price at posting:
$8.75 Sentiment: Buy Disclosure: Held
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