The Whitehaven Coal Ltd (ASX: WHC) share price has been a top performer in the past month, rising 36.5%.
It has significantly outperformed the S&P/ASX 200 Index (ASX: XJO), which has fallen by 1.76% over the same time.
What has caused such a big outperformance by Whitehaven shares?
With energy prices soaring around the world, coal is benefitting as countries try to keep their energy grids powered. This includes using more coal.
The ASX coal share recently reported its FY22 result, which showed how much the company is benefitting.
FY22 earnings recap
In the 12 months to 30 June 2022, the coal miner generated record revenue of $4.9 billion (up 216%) thanks to an average coal price of AU$325 per tonne. This compares to $1.56 billion revenue and an AU$95 per tonne average price in FY21.
Its earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed by 1,396% to $3.06 billion.
Whitehaven made $1.95 billion of net profit after tax (NPAT). This compares to an underlying net loss of $87.3 million in FY21.
Operating cash flow soared 1,423% to $2.58 billion.
The ASX share has also been carrying out an on-market share buyback worth $550 million. The Whitehaven board will seek shareholder approval to increase the buyback at the company's annual general meeting (AGM) in October.
It also decided to pay a final, fully-franked dividend of 40 cents per share. At the current Whitehaven share price, that dividend alone represents a grossed-up dividend yield of 7.2%.
The FY22 dividends and share buyback represent a total payout ratio of 51% of FY22 net profit, in line with the company's policy.
Why are coal prices so high?
Whitehaven CEO and managing director Paul Flynn explained:
The longer-term under-investment in energy sources needed to supply baseload capacity to growing populations and economies has contributed to a widening gap between supply and demand. In FY22, we saw global energy shortages intensify as a result of the tragic conflict in Ukraine and associated sanctions against Russian coal and gas.
Coal prices are at record levels and customers are focused on energy security now more than ever before.
Demand for high-quality seaborne thermal coal is expected to remain strong throughout FY23 and high-CV coal prices should continue to be well supported.
To take advantage of this, Whitehaven expects to deliver higher production and coal sales in FY23 compared to FY22.
The company noted:
It is likely to take several years before additional supply or alternative energy sources are available to rebalance global supply and demand dynamics. Throughout the coming multi-decade energy transition reliable baseload fuels will be required. This will underpin continued demand for coal and, in particular, for the high-CV coal Whitehaven produces on account of its higher energy content and lower emissions profile relative to other coal products.
Broker confident about the Whitehaven share price
As first noted by my colleague James Mickleboro, the broker Morgans thinks that the high coal price will lead to "supercharged returns" for shareholders.
The broker has an add rating on the Whitehaven share price, with a target of $8.60. That suggests a possible rise of close to 10% over the next 12 months. It thinks there is "strong potential for a more prolonged dislocation in energy markets where supply security commands a higher premium for longer".
With Whitehaven making profits and returning to paying fully franked dividends, it could pay a grossed-up dividend yield of 14.5% in FY23 and 11.5% in FY24, according to Morgans.
Based on the profit expectations, Morgans values Whitehaven shares at 3x FY23's estimated earnings and 7x FY24's estimated earnings.
