The Whitehaven Coal Ltd (ASX: WHC) share price is falling amid the company's annual general meeting (AGM) and news it will host a second on-market share buyback.
It was granted shareholder approval to buy back up to approximately 25% of its issued shares at today's meeting. Shortly afterwards, the company announced the commencement of the capital return activity.
But the S&P/ASX 200 Index (ASX: XJO) coal share's announcement hasn't been enough to see it in the green
The Whitehaven share price is currently trading at $9.68, 6.56% lower than its previous close.
Meanwhile, the S&P/ASX 200 Energy Index (ASX: XEJ) is today's second-worst-performing sector, dumping 1.34% at the time of writing. Comparatively, the ASX 200 is up 0.1%.
Let's take a closer look at the latest from the coal favourite.
Image source: Getty Images
What's going wrong for Whitehaven today?
The Whitehaven share price is leading the energy index into the red on Wednesday. That's despite news of another buyback and optimistic comments from the company's CEO.
The coal giant has committed to buying back 240 million shares – or around 25% of its issued capital – over the next 12 months, beginning tomorrow.
That's in addition to the 10% buyback the company completed earlier this month.
Meanwhile, in an address released to the ASX, Whitehaven CEO and managing director Paul Flynn said the company is still facing inflationary pressures and labour supply constraints. Flooding has also blocked access to its open-cut mines, hampering production.
However, it's pushing past such disruptions. The company is still hopeful it will meet its previous guidance and will put excess cash towards capital returns and growth opportunities. Flynn commented:
First, we will use cash to maintain and optimise existing operations. Second, we will retain cash to maintain balance sheet strength and to have funding optionality and flexibility. And third, we will return capital to our shareholders in the form of franked dividends and share buybacks.
After those priorities we will use surplus cash to invest in growth if that is the best use of capital.
Growth investments might include [mergers and acquisitions] to increase our equity stakes in our existing business or where there are opportunities to grow in metallurgical coal and diversify our operations… But we will only invest in these growth opportunities if they deliver appropriate returns for our shareholders.
Whitehaven is aiming to return between 20% and 50% of its net profit after tax to shareholders through dividends and buybacks. That ratio may be higher if the company believes buybacks to be more attractive than investing in growth.
The company might also put excess cash towards diversifying its operations out of the Gunnedah Basin. It might also look to funnel funds into its Vickery or Winchester South development projects.
Is the Whitehaven share price 'exceptional value'?
In what's likely brilliant news for shareholders, the Whitehaven CEO believes the company's share price has the potential to go even higher. Flynn said:
While the share price has appreciated considerably over the past year… earnings have increased more significantly.
Looking at the history of Whitehaven's share price, there has been a strong correlation with coal price until about two years ago. At that point we started to see a disconnect… making Whitehaven shares exceptional value.
Today's tumble included, the Whitehaven share price is around 270% higher than it was at the start of 2022. It has also gained approximately 256% since this time last year.
Flynn continued:
While we do not expect the current high prices to be the new normal, we do believe there is some structural change… which will deliver higher long-term pricing than before.
The coal market is not like any other.
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.
