Whitehaven boss Paul Flynn says the coal miner could beat payout policy as cash rolls in
Whitehaven Coal wants to buy back 25 per cent of its shares this year, but managing director Paul Flynn said returns could rise if the company’s market value lags its profit growth.
Whitehaven Coal will kick off a share buyback of more than $2bn after shareholders agreed to plans for the company buy as much as a quarter of its own share register back on the market.
Investors voted overwhelmingly in favour of the buyback, in which the company will buy up to 240,000 of its own shares – one of be the biggest on-market buyback programs in local corporate history, as a proportion of its own issued capital, particularly given the company has just closed out a 10 per cent buyback.
With Whitehaven shares closing just below $10 on Wednesday, the approval means the company could splash as much as $2.5bn through the buyback and managing director Paul Flynn telling holders the company could even look to increase its share buyback as coal cash keeps rolling in.
Whitehaven has a policy of returning 20- 50 per cent of net profit to shareholders, and booked a $2bn after-tax result last financial year. With coal prices so far this year well up on last year’s average and still sitting at close to $US390 a tonne, profits are likely to surge from last year’s records.
Over the past year Whitehaven has already returned $588m to investors through an 8c-a-share interim dividend and 10 per cent buyback completed last week.
While Mr Flynn said Whitehaven would look to retain cash to pay for its growth options, he said Whitehaven’s payout ratio could rise above its 50 per cent policy if the cash keeps rolling in.
“If buying back additional shares continues to be more attractive than investing in growth then our payout ratio may be higher if there is surplus cash,” he said.
Commonwealth Bank resources analysts this week tipped the thermal coal price to soften over the next nine months, but are still forecasting prices for high-value Australian coal to trade at an average $US325 a tonne in the three months to June 30, 2023.
“Share buybacks have been and are expected to remain an efficient and value-creating way to return capital to our shareholders, particularly if the share price is undervaluing the company, which we believe remains the case,” Mr Flynn told shareholders at Whitehaven’s annual meeting in Sydney on Wednesday.
“While the share price has appreciated considerably over the past year, increasing from around $3 per share a year ago to above $10 in recent weeks, earnings have increased more significantly.”
While he does not expect current high prices to be the “new normal”, structural changes from ongoing shortages and changed market dynamics will deliver higher long-term pricing.
“There has been little reinvestment in the industry to respond to the supply shortage and very few companies are in the position that Whitehaven is in, where we have new development opportunities that we can bring on in the future,” Mr Flynn said.
Whitehaven said last week it was looking at ways to bring its Vickery thermal coal project into the market more quickly, flagging the development of plans for a small start-up mine which would send coal to its Gunnedah operations for processing, allowing Whitehaven to get extra tonnes into the market ahead of a full-scale development of a 10 million tonne a year operation.
“We expect to firm up our view around this during this financial year,” he said. While first-quarter production was hit by floods, Mr Flynn said he believed the company could still hit its guidance of managed coal sales of 17.5 million to 18.5 million tonnes.
Climate campaigners also claimed a minor win at Whitehaven’s annual meeting, after putting a motion calling on the company to disclose information in its next annual report “that demonstrates how the company’s capital expenditure and operations pertaining to coal assets will be managed in a manner consistent with a scenario in which global energy emissions reach net zero by 2050.”
An allied resolution to change the company’s constitution to allow similar shareholder resolutions in future garnered the support of only 2.5 per cent of shares voted at the meeting, but about 21 per cent of proxy shares voted ahead of the meeting supported the disclosure motion.
While that was still a resounding defeat for the motion, a similar motion in 2021 attracted the support of only 9.5 per cent of proxy shares voted.
Whitehaven shares closed down 84c to $9.52 on Wednesday.
