New Hope Corporation Limited (ASX: NHC) shares have dropped 12% in the last month as market sentiment about the ASX coal share wanes.
Coal prices shot up enormously after the Russian invasion of Ukraine triggered countries to look for alternative sources of energy.
Higher coal prices led to enormous profit generation for New Hope. Indeed, the business is still making considerable profit and directors have been buying up New Hope shares. So is this a good time to be considering the ASX mining share?
Director buying
New Hope chair Rob Millner and his son have been buying a lot of shares in the coal miner.
Another investment was made by the Millners in late April 2023.
T G Millner Holdings Pty Limited bought another 100,000 New Hope shares at a price of $5.542 for a total cost of $554,200. This was an on-market trade, so ordinary investors like you and I would be able to copy this move — if we wanted to.
The New Hope share price has dropped another 4% since that investment, so people can grab a slice of New Hope today at a cheaper price.
Indeed, the Millners have significant money invested in New Hope shares. According to the latest ASX announcement, Rob Millner has direct interests in 279,559 shares and indirect interest in another 5,743,215 New Hope shares. That means that the total exposure is now $32 million.
Of course, the Millners have even more exposure to New Hope through their holding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. Soul Pattinson is a substantial shareholder of New Hope shares.
Is the New Hope share price a buy?
A couple of months ago, we got to see New Hope's FY23 half-year result for the six months to 31 January 2023.
It saw net profit after tax (NPAT) rise by 102.4% to $668.6 million while operating cash flow improved by 117.3% to $983.5 million.
The business declared an ordinary dividend of 30 cents per share and a special dividend per share of 10 cents. The total payout of 40 cents per share represented an increase of 33% year over year.
Using the current estimates on Commsec, New Hope is valued at just 4x FY23's estimated earnings. The annual payout could be 75 cents per share, which equates to a grossed-up dividend yield of 20%.
For almost any business, those would be attractive metrics. But the coal price may not stay as high as it is. New Hope earnings are expected to fall in FY24 and then FY25, according to Commsec forecasts. The ASX coal share is valued at 5x FY25's estimated earnings, which is still very low.
The Millners think the current New Hope share price is good value. If New Hope can continue to generate good earnings then it may well be cheap, and the dividends could continue to be rewarding. It may also be some time before enough alternative energy is available to replace coal.
However, I'd rather invest in a business where earnings are more likely grow over the longer term. As well, coal is certainly not a popular investment when it comes to investing with ESG considerations in mind.
