Coal is a very divisive subject. When we look up the dictionary definition, it is 100% spot on “trending to cause disagreement or hostility between people.” Some investors are so against coal they avoid the entire sector altogether. However, our opinion is that the world still needs coal while we transition to cleaner sources.
The company we are looking at today is Whitehaven Coal (WHC). This is simply because of the cash balance the company has.
In the Q3 quarterly report released this morning, WHC had a net cash position of $2.7 Billion as at 31 March 2023. The cash balance increased from the previous quarter despite a $552 million tax payment (in relation to FY22) and returning $373 million of capital to shareholders (dividend and buybacks).
What is the company doing with this cash balance? First, they are going to buy back more shares. The company started its second on-market buyback on the 26th of October, 2022. Under this buyback, they intend to buy back a maximum of 240 million shares. This number of shares represents 25% of outstanding shares (that is a significant number).
So far, under the current buyback, they have only repurchased 53.1 million shares, potentially a lot more to buy back. The buyback will support the share price.
Looking at the recent trend, the share price has recently broken its downtrend by breaking the slanted trendline. It then entered a period of consolidation where the price action of the stock traded in a tight range leaving short and intermediate moving averages flat. Although, when the price action of WHC turned up today, it has lifted the shorter moving averages confirming an uptrend whilst also trading above the intermediate 50 day moving average for the first time in four months.
Quantity: Buy 750 shares
Entry: Buy up to $7.35
Stop Loss: $6.50
Target Price: $8.50