Companies keeping lights on for EasyVSTRs and Consumers

Coal

Globally, markets have hit a downward trend over the past weeks months; this was influenced by many factors, including the rising energy prices associated with high volatility as the global dependence shift comes into effect.

While uncertainties take a toll on the global economy and increase the cost of living, we look into companies keeping the lights of investors' portfolios on 📈 during the dark times 📉, while ensuring the lights are on 💡.

EasyAUD:

Whitehaven Coal Limited (WHC)

Trading at around $5 per share, Whitehaven Coal is one of Australia's large coal mining companies. The company has at least seen its share price appreciate by over 250% in a one year period, which was heavily influenced by the global dependence shift, as coal miners continue to reap the benefits of rising coal prices. The company is part of the ASX top 300 with operations in more than ten countries and a supplier in Asia.

Benefiting from coal, in December 2021, Whitehaven's revenue was up by 106% year on year (YoY) to AU$1.4 billion. Net profit for the period was AU$340 vs a loss of AU$95 million PCP; Net profit margin was 23%, which reflected a 274% YoY growth, and operating expenses remained steady YoY at around $300 million. While the majority of cash from operations was used to service the company's debt, AU$93 million was spent on expanding and growth-related activities.

To share value from the rising coal prices, the company paid a dividend of AU$0.08 in March and initiated a AU$400 million buyback program whereby the company will acquire up to 10% of its own shares. Despite the net debt of AU$403 million, the company noted its track to reach net cash in March 2022 with a 12% gearing or debt to equity ratio, reflecting how much the debt the company is using compared to its equity.

Outlook

Other than coal prices, which influence earnings and share price volatility, Whitehaven continues to create value for investors since the stock is also in the process of a buyback program that may be rewarding in earnings in the long term.

According to Sustainalytics, Whitehaven is considered risky in terms of its ESG rating, which may play a contributing factor in the long term as the company re-adjustments to align with ESG goals and growth barriers while contributing to a sustainable future.

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EasyZAR:

Thungela Resources Limited (TGA)

Another man's trash is another man's gold; considered one of the world's best performing coal companies, Thungela took the world by surprise after it separated from Anglo to become an independent coal miner. The company was removed from Anglo's portfolio as a way for Anglo to align itself to reduce CO2 emissions from its operations and association.

Since its listing in June 2021, the company has at least seen a growth of over 1000%, with 200% in less than six months. Given the current geopolitical factors and demand for energy which has been fueling the high prices of coal, Thungela has managed to achieve a net profit margin of 38%, which was a 480% YoY in December 2021. Revenue was R8.12 billion representing 675% YoY growth. Notwithstanding an increase in costs, Net income increased by over 3000% to over R3 billion or R22.64 per share.

A total of R2.5 billion was distributed to shareholders during the period, which represented at least 60% of the company's operating free cash flow. The company closed the year with a balance of R8.66 billion, with its capital expenditure increasing to R2.3 billion.

From being a threat to ESG to being a target for ESG minded investors, Thungela became one of the coal companies owned by two signatories of the Glasgow financial alliance (Abrdn Plc and Vanguard Group Inc), an association established to achieve Net-Zero.

Outlook

As coal prices continue to trade at an all-time high, Thungela may see its earnings rise with profit margins widening. Sharing value with stakeholders, Thungela is committed to maintaining a dividend payout policy above 30% of the company's operating cash flow; other insensitive include future buyback programs.

In South Africa, the rail problem is among the issues that may affect the company's sentiments and operations, which may lead to a volatile environment for the stock.

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Informed decision

The above mentioned may play an influencing role in keeping coal in the economy for a few more years to have a more 'swift' transition to renewables and clean energy to benefit investors and communities.

Furthermore, we may see more earnings diverted to investments aimed at reducing CO2 emissions, focusing on ESG targets to contribute to a more sustainable future, given the health and environmental issues around the use of coal to generate energy.

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New to investing

and want to know more about our other stock picks?

Read: Three stock picks for uncertain times 📊

Sources – EasyResearch, Thungela Resources Limited, Whitehaven Coal Limited, ASX, JSE Sens, Sustainalytics.

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