##{"id":58731,"date":"2011-08-24T12:00:57","date_gmt":"2011-08-24T02:00:57","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/24\/whitehavens-vickery-project-keeps-brokers-positive\/"},"modified":"2011-08-24T12:00:57","modified_gmt":"2011-08-24T02:00:57","slug":"whitehavens-vickery-project-keeps-brokers-positive","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/24\/whitehavens-vickery-project-keeps-brokers-positive\/","title":{"rendered":"Whitehaven’s Vickery Project Keeps Brokers Positive"},"content":{"rendered":"

\n\t– Whitehaven<\/span> result beat guidance
\n\t– RBS<\/span> identifies a number of positives in the result
\n\t– Production growth and M&A potential sources of upside
\n\t– Upgrades follow profit result<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tHaving guided to full year earnings of $70 million, coal producer Whitehaven<\/span> Coal ((WHC<\/span>)) exceeded this with an underlying net profit of $73.3 million. Adverse weather and legacy contracts in the period caused some significant items, meaning reported profit for the year was just $9.9 million.<\/p>\n

\n\tIn the view of RBS<\/span> Australia, the market is likely to look through these legacy issues, particularly as there were a number of positives in the Whitehaven<\/span> result. These include an expansion of open cut operations, which is increasing production flexibility.<\/p>\n

\n\tRBS<\/span> also notes Whitehaven's<\/span> fixed price legacy contracts will roll-off entirely in the coming year, while cash production costs have also been well contained. A quality development pipeline is a further reason to be attracted to the stock in RBS's<\/span> view.<\/p>\n

\n\tThe Vickery<\/span> project is a key growth option for Whitehaven<\/span> and here UBS is very positive, as the recently announced Boggabri<\/span> joint venture is expected to facilitate development of the project. Vickery<\/span> is also helping deliver increased resources and reserves, the former being boosted by 21.5 million tonnes<\/span> in the June half to 1,750 million tonnes<\/span> and the latter rising by 60.4 million tonnes<\/span> to 426.1 million tonnes<\/span>.<\/p>\n

\n\tThe additional positive in this increase is an improved product mix thanks to Vickery<\/span>. Morgan Stanley agrees, noting with Vickery<\/span> factored in, Whitehaven<\/span> has greater exposure to the broker's favoured<\/span> thermal coal market.<\/p>\n

\n\tThis increase in reserves is important in UBS's view as it is expected to enable Whitehaven<\/span> to apply for increased tonnage with respect to port allocations. UBS expects an increase to 15 million tonnes<\/span> annually by FY17<\/span>, up from a current allocation of 10.2 million tonnes<\/span>.<\/p>\n

\n\tOn UBS's numbers a successful medium-term port deal could add as much as 50c<\/span> in valuation upside to Whitehaven<\/span>. What should also boost valuation is an expected tripling of production growth by FY16<\/span>. Factoring this in, UBS generates an increased net present value for Whitehaven<\/span> of $8.19 per share, based on a port allocation in FY17<\/span> of 15 million tonnes<\/span>.<\/p>\n

\n\tHigher coal prices could lift valuations for Whitehaven<\/span> further, Morgan Stanley noting coal markets in general and the thermal coal market in particular should remain tight in coming years. In support of this view, Indian demand is expected to grow strongly.<\/p>\n

\n\tThe other element at play with respect to Whitehaven<\/span> is the potential for the company to be a target in any further consolidation of the Australian coal sector. On RBS's<\/span> numbers Whitehaven<\/span> is trading at a 6% premium to net present value at present, a level that appears modest given Felix Resources and Centennial Coal achieved premiums of 30-40% when acquired.<\/p>\n

\n\tThis supports a Buy rating from RBS<\/span>, while both UBS and Credit Suisse have upgraded to Buy ratings on Whitehaven<\/span> from Hold recommendations previously given the potential upside as the Vickery<\/span> project in particular is incorporated into models.<\/p>\n

\n\tMacquarie is not quite as bullish on the M&A valuation argument, noting Whitehaven<\/span> recently ran an unsuccessful bidding process where the mooted price range for bids of $7.00-$7.50 per share was too high for potential suitors. To reflect this observation, Macquarie retains a Neutral rating.<\/p>\n

\n\tThe FNArena<\/span> database shows Whitehaven<\/span> is rated as Buy four times and Hold once, while Goldman Sachs and Morgan Stanley are not in the database but rate the stock as Hold and Overweight accordingly. The latter is within an Attractive view on the Australian coal sector.<\/p>\n

\n\tGiven some increases to valuation price targets for Whitehaven<\/span> have also crept higher, the database showing a consensus target now of 7.11, up from $6.84 previously.<\/p>\n

\n\tShares in Whitehaven<\/span> Coal today are stronger and as at 11.45am<\/span> the stock was up 19c<\/span> at $6.38. Over the past year the stock has traded in a range of $5.22 to $7.35, the current share price implying upside of around 11% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"