HendrikBothma (Katana Asset Management) The cheapest stock in...

HendrikBothma (Katana Asset Management)

The cheapest stock in theASX 100 doubles production next month and the price is yet to catch up.

WHC emerged as thesuccessful bidder for BHP’s Daunia and Blackwater coal assets (BMA Assets) inOctober last year. The transaction is due to settle next month at which pointWHC’s saleable production instantly doubles from ~14mtpa to ~27mtpa.

Not many companies candouble their size with a single transaction without a seriously dilutive equityraise. But a unique lead up and record coal prices allowed WHC to build a cashbalance of $2.8bn by the end of FY23.

This enabled them to fundthe acquisition entirely from cash and a new US$1.1bn debt facility. A keypiece the market’s overlooking is there’s been no share dilution andshareholders now own a materially larger business.

WHC also have asignificant near term catalyst in the pipeline with a potential 20% sell downof Blackwater. Talks are already under way with potential partners and proceedsare estimated at US$1.1bn.

If WHC achieve this theycould potentially be back in a net cash position over the next year.

Figure 3: Global coal comparables and trading multiples

WHC’s share price rosenear 20% when the deal was announced, but the move since fizzled out with thecurrent price now below what it was pre the announcement.

The multiples on WHC arecheap, in fact WHC is possibly the cheapest coal producer globally. Factsetconsensus has them on a FY25 PE of 4.1x and EV/EBITDA 1.5x.

We believe there’smaterial upside to this especially with some analysts yet to reflect theacquisition in their forecast.