The Whitehaven Coal Ltd (ASX: WHC) share price has dropped 16% since 10 August 2023, as we can see on the chart below.
It's significantly underperforming the S&P/ASX 200 Index (ASX: XJO) which is only down by 2.7% over the same time period.
Nonetheless, it has been a very profitable period for the company over the past year and a half. In FY23 alone, it made revenue of $6.1 billion, operating cash flow of $4.2 billion (up 63%), and net profit after tax (NPAT) of $2.67 billion (up 37%).
This allowed the business to pay an annual fully franked dividend of 74 cents per share, as well as buying back a total of 119.67 million shares. The share buyback and dividend together represented a shareholder payout ratio of 50% of FY23 net profit.
So, after everything that's happened, is the ASX coal share a buying opportunity? I recently had my say on that question. But since then, some experts have given their commentary on the business, and the New South Wales government has increased royalties on the coal sector.
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NSW royalties
As reported by various media outlets, including the ABC, the NSW government is increasing the royalty rate by 2.6% from July 2024 for open-cut, underground, and deep-underground mines. This will take the royalty rate to 10.8%, 9.8%, and 8.8% respectively.
The NSW government expects this will boost the state budget by $2.7 billion within four years.
While ASX coal shares wouldn't want to pay more royalties, the ABC reported that NSW Minerals Council CEO Stephen Galilee was pleased that NSW didn't follow Queensland's sliding scale royalty scheme. He said:
We are relieved that the NSW government has decided not to recklessly impose a Queensland-style windfall progressive royalty system in NSW, because that would have wreaked havoc on the sector.
It would have caused mines to close early, it would have cost lots of coal mining jobs and it would have potentially threatened energy security.
What do experts think of the Whitehaven Coal share price?
According to the analyst opinions that Commsec collates, there are four buy ratings, seven hold ratings, and two sell ratings on Whitehaven Coal shares at the moment.
According to reporting by The Australian, after seeing the royalties changes, broker Goldman Sachs decided to decrease its FY25 and FY26 earnings per share (EPS) forecasts by between 7% to 8%, resulting in a 3% reduction of its target price to $6.90.
A target price is where an analyst thinks the share price will be in 12 months. As such, Goldman Sachs is suggesting the Whitehaven Coal share price could rise by around 10% in the next year — down on its previous forecast.
The broker is bearish about the near-term outlook for thermal (energy) coal because the market is well supplied amid a heat wave across Asia, according to The Australian.
What could happen with the coal price?
For commodity businesses, the price they can get for their production can have a big impact on profitability and could therefore affect the Whitehaven Coal share price.
When the ASX coal share released its FY23 result, it said:
Whitehaven's thermal customers are focusing on longer supply contracts as energy security remains a key priority. This is expected to continue through the energy transition due to supply shortfalls particularly for high CV thermal coal.
While thermal coal prices have retreated from record high levels, the resilience in the gC NEWC index [the benchmark price for coal contracts in Asia] through this seasonal lower demand period provides positive sentiment for the outlook. As restocking requirements increase in the months leading up to the Northern Hemisphere winter, upward pricing pressure for thermal coal is expected.
Current metallurgical coal market pricing is strong. In the longer-term, strong demand drivers for metallurgical coal are expected, largely driven by demand growth in India, emerging Asia, as well as China.
Whitehaven Coal share price snapshot
Over the past year, Whitehaven Coal shares have dropped almost 30%, while the ASX 200 is up by 3.8%.
