An interview with Whitehaven Coal chief Paul Flynn |
Tweet | ![]() |
<p><strong>Lex Hall:</strong> Hi, I'm Lex Hall for Morningstar. Coal is one of Australia's key exports and Whitehaven Coal is a key producer and exporter. It's also in Morningstar's best ideas list. To discuss its fortunes and its future we're joined by managing director and CEO of Whitehaven Coal and by Morningstar analyst, Matt Hodge.</p>
<p>Hodgey, let's start with you. What is Whitehaven Coal and why is it on the best ideas list?</p>
<p><strong>Mathew Hodge:</strong> Yeah. So, it's a coal company we've been covering it for a while, mainly produces thermal coal. It's got a few operations in New South Wales, relatively low-cost producer. Really, the coal industry is not making money at the moment and that's reflected in the share price as all our concerns about the outlook and we think that's discounted in the shares and we think the market is probably being a bit unrealistic in its outlook for the future for this business. So, it's trading at a steep discount to our fair value estimate. So, that's why we're here, and that's why we're talking about Whitehaven Coal.</p>
<p><strong>Hall: </strong>All right. Paul, let's turn to you. Welcome to Morningstar. Thanks for coming along. Let's talk about the results first. It was a bit of a rough result and the shares have sold off since then, that was sort of late August, by about 30%. What's your take on how the market reacted to that?</p>
<p><strong>Paul Flynn: </strong>Yeah, look, I think it was a tough day and the subsequent days have been tough trading also for the stock since that time. Look, I think there's – the concerns are more about the outlook really, not so much the numbers we printed. And although it is a large transition from the previous year 2019, which was a record on the higher level, and you feel like very quickly we're back at the low levels of a trough in a relatively short space of time. But I think it's the outlook what most people are focused with their concerns.</p>
<p><strong>Hall: </strong>And it's been a year like no other, obviously?</p>
<p><strong>Flynn: </strong>Well, there's been much, much to do in our business, I can tell you that. It's been – we've had ongoing droughts, which had been very severe and difficult for us, but we dealt with that without stopping production at all right through that drought, which was great. We actually had some flooding rains unfortunately in February, which is great to bring water supply back into the region for everybody's purposes. And then, of course, COVID on top of that, which is quite extraordinary. So, you can imagine what January – January seemed quite normal, although COVID was in the background. February started to ramp up. By the time March came around everybody was scrambling, you know, how do we keep our operations going and manage the risk of infection and so on in our operations and the community more generally.</p>
<p><strong>Hall: </strong>And Mat, what about you? How did you see the market's reaction?</p>
<p><strong>Hodge:</strong> Yeah, I think there's a lot of concern about the outlook. I mean, that's predominantly where the share price action is and with the coal price where it is, the company isn't going to make a lot of money this year, but I guess it's about what are you paying for and you are paying for a future earnings stream that's not just a single point in time. So, I guess, that's where we would disagree with the market. So, yes, there are some concerns. I think balance sheet is probably a primary one, and we'll talk about that. But this business was in worse shape in 2015, in my view, and it's got a more productive capacity and better ability to earn its way out of the debt position that it's in. So, I think given then – and they didn't need to raise capital in 2015, I think the odds favor upside from here.</p>
<p><strong>Hall: </strong>Okay. Paul, on that, are you being conservative? Do you see any upside to other unit costs or volumes?</p>
<p><strong>Flynn: </strong>Lex, I think the market reaction to our guidance has been less enthusiastic. And I think these are times when a little bit of conservatism is warranted. The outlook is uncertain. You'd be a ballsy bunch to put some sharp-edged guidance out. And so, we have taken a conservative position both on volumes and costs, and I think that's the right posture to have at this time because there are some moving pieces here and nobody's crystal ball is working exactly as they'd like it to at the moment.</p>
<p><strong>Hall: </strong>That's right. All right. Well, let's turn to the balance sheet. Debt is pretty high right now, and that's unfortunately corresponding with the downturn in the coal price. How confident are you that Whitehaven Coal has sufficient funding to weather this unprecedented downturn?</p>
<p><strong>Flynn: </strong>Yeah, look, it's fair to say that there's a lot of focus on the balance sheet capacity and our liquidity at the moment is just under the $500 million mark between our drawable capacity from our facility and cash in the bank. So, that's a lot better than the last cycles as Mat has referenced. So, we feel much more comfortable that we got, as you say, a bigger production base with which to earn our way out of this. And we're doing all the things that you would expect us to do at this point of time in terms of metering out the capital very parsimoniously, obviously screwing our cost base down as quickly and as hard as you can without doing any damage to the long term. All those things will see us through this period. And our view is that we don't need equity. And so, we're quite comfortable in that regard. The banks are very supportive.</p>
<p><strong>Hall: </strong>Yeah, I wanted to ask you that. Have you had any lenders sort of step away from coal?</p>
<p><strong>Flynn: </strong>Look, we refresh our facility every two years. We go through an amend extend process and we did that just in November past. So, add another two years onto our facility…</p>
<p><em>To hear the interview in full, register for the Morningstar Individual Investor Conference, to be held on 29-30 October.</em> <a href="https://www.morningstar.com/en-au/events/miic" target="_blank">https://www.morningstar.com/en-au/events/miic</a></p>

21/01/2021 Redpoint CEO and portfolio manager Max Cappetta looks at the dividend potential of large-cap names, the resilience of Qantas, and the local tech landscape.

19/01/2021 Stocks still look cheap across all subsectors, especially oilfield services and refining, says Morningstar analyst Dave Meats.

19/01/2021 What are the rewards and risks of using this technology?

15/01/2021 Morningstar's head of policy research Aron Szapiro explains what sort of changes a Biden government will make and how they will affect company valuations.

14/01/2021 Freight-rail, building temperature efficiency, and carmaking are among the sectors Aviva Investors' Jaime Ramos Martin has his eye on.

13/01/2021 Dividend investors had a hard time in 2020, but Morningstar analyst Dan Lefkovitz think the outlook is brighter for the year ahead.

11/01/2021 Morningstar Investment Management's Dan Kemp reveals the three investment themes on his mind for the year ahead.

06/01/2021 Morningstar equity analyst Allen Good looks at the prospects for oil and gas giants in the year ahead.

05/01/2021 China had a strong year after a rocky start, but can it continue—and what does a US President Biden mean for the region? Morningstar analyst Lorraine Tan explains.

04/01/2021 Morningstar equity director Alex Morozov considers the outlook for tech, travel and beyond for the year ahead.

01/01/2021 How to plan for things you can't plan.

25/12/2020 2020: we look back at the highs and lows of an unprecedented year in financial markets and explore the themes shaping 2021.

22/12/2020 Music streaming companies have seen stellar growth in user numbers. We ask Morningstar equity analyst Neil Macker if the trend can continue.

21/12/2020 While it stands as the largest addition in the index's history, this likely won't impact everyday investors all that much.

18/12/2020 Will there be opportunities to deploy cash in the new year? Will there be a reprieve from covid? And what will the incoming Biden administration mean for markets?

18/12/2020 Companies that specialise in solar, building efficiency and renewables underpin Aviva Investors' Climate Transition Global Equity Fund, says Jaime Ramos Martin.

16/12/2020 Why does liquidity matter to investors, and how can it affect your returns? Morningstar equities director Tom Whitelaw explains.

14/12/2020 Learn what we look for when rating a company.

14/12/2020 Morningstar's new approach unpacks the environmental, social and governance risks that companies face.

10/12/2020 Industrial companies typically generate better cash flows and can offer a steady income stream, says the IML founder.

09/12/2020 The lofty valuations of Tesla and Afterpay typify the effervescence and speculation in the market, says the IML founder.

08/12/2020 Car makers may not be an obvious investment choice for ESG-conscious investors, but Morningstar analyst Tancrede Fulop says some of the largest companies score highly in some measures such as safety and human capital.

07/12/2020 Janus Henderson's Matt Peron considers how the relationship between the US and China will evolve under a President Biden.

04/12/2020 What is active investing, and what is passive investing? We're at the whiteboard to explain the pros and cons of each

04/12/2020 Treasury Wine Estates remains an undervalued stock in spite of China's demand-destroying tariff on Australian wine. Morningstar director of equity research Adam Fleck explains why.

03/12/2020 And do any other assets currently compare?

02/12/2020 We're at an inflection point in ESG investing, says Sustainalytics founder Michael Jantzi. Here's why.

01/12/2020 Beaten-down travel stocks and BNPL providers featured heavily, says nabtrade’s Gemma Dale.

30/11/2020 Many people were waiting for the opportunity to buy shares at historic discounts, says nabtrade’s Gemma Dale.

27/11/2020 The 171-year-old wealth manager has had its scandals but there's merit to its turnaround strategy and the quality of its other assets, says Morningstar's Shaun Ler.

27/11/2020 BNPL products such as Zip Co help boost consumer spending but they come with risks and are overvalued, says Morningstar analyst Shaun Ler.

26/11/2020 The Magellan co-founder argues the ecommerce acceleration is here to stay and ponders the effect it will have on other sectors such as travel and commercial real estate.

25/11/2020 Greg Dean of Cambridge Global Asset Management explains why the consumer services sector has yielded healthy returns.

25/11/2020 Magellan's co-founder explains which tech behemoth the Magellan Global Fund no longer owns, why one was too tricky to value, and why regulation is no threat.

24/11/2020 Magellan's co-founder on why 2020 resembles 2000 and why covid-19 is a dry run for something that could be much worse without proper planning.

23/11/2020 Their shares have gotten hammered this year. Are they opportunities or value traps?

20/11/2020 Our new rating highlights the degree to which a fund or asset manager considers environmental, social, and governance issues.

19/11/2020 Morningstar's Grant Kennaway explains why sustainable funds are increasingly popular and why they're performing well.

17/11/2020 Morningstar director of equity research Johannes Faul looks at home improvement retailer Bunnings.

16/11/2020 From climate change to workers' rights, ESG is a big part of the investing world. We're at the Morningstar whiteboard board to explain what it means and why it matters.

12/11/2020 We're not out of the woods yet, says our head of equity research, as he looks for safety in businesses we can't live without and shies away from the banks.

11/11/2020 Perhaps it is time to have exposure to this economic powerhouse and its 1.4 billion population, says Morningstar's Peter Warnes.

10/11/2020 What happens when you buy something when your bank card? Morningstar analyst Niklas Kammer explains which companies are benefiting from your transaction.

09/11/2020 With travel bans and economic lockdowns, the luxury sector has been hit hard in 2020. But there are still opportunities, says Morningstar analyst Jelena Sokolova.

05/11/2020 A discussion of taxes, stimulus, regulation, and the likely market reaction as results from the 2020 poll come in.

03/11/2020 Why you should resist the urge to make predictions when there's a disconnect between the economy and security prices.

02/11/2020 Etoro analyst Josh Gilbert shares his thoughts on Beyond Meat and two other companies making inroads into the plant-based meat sector.

30/10/2020 The Magellan rainmaker explains why he doubts the Republican leader will prevail and why investors should brace for volatility—and ignore it.

29/10/2020 The market for plant-based meat is worth $14bn today and is expected to grow massively, says eToro's Josh Gilbert.

28/10/2020 Morningstar equity analyst Johannes Faul explores the flipside to the surge in growth in online sales.

22/10/2020 China and Hong Kong have been a happy hunting ground, says Longlead Capital Partners' co-founder Andrew West, who singles out tech, pharmaceuticals and power tools.

22/10/2020 These names stand to benefit from a resumption of leisure travel - and are all trading below our fair value estimates.

20/10/2020 Morningstar's Mark Preskett looks at three reasons why bonds are an important tool in your investment portfolio.

19/10/2020 A bigger stake in the online conveyancer PEXA could be the key to increasing Link Administration's revenue, says Morningstar's Gareth James.

16/10/2020 Longlead Capital Partners co-founder Andrew West reveals how his Asia-focused fund managed to make gains during the historic covid-19 sell-off.

16/10/2020 The investment board is back with an explainer on why you might invest in bonds.

13/10/2020 How to handle this decision—even when it is made for you.

12/10/2020 Nick Griffin of Munro Partners reveals why and where he sees opportunities in renewable energy, diagnostics and software.

09/10/2020 Take stock of your spending to determine if inflation is an issue for you.

09/10/2020 Morningstar analyst Chelsey Tam explains why investors are excited about the flotation of Ant Group and why it's different from Alibaba.

06/10/2020 Companies that address the growing demand for decarbonisation will have a 20-year growth opportunity, says Nick Griffin of Munro Partners.

30/09/2020 EXCLUSIVE EXTRACT: Morningstar's Mat Hodge and Lex Hall talk to the CEO of the independent producer and exporter about the company's fortunes and its future.

30/09/2020 Slow and steady wins the financial race.

29/09/2020 American Century Investments' low-turnover strategy invests in companies developing vaccines, treatments for neuro-cognitive diseases and innovations in telemedicine.

25/09/2020 By 2050, almost 20 per cent of the global population will be over 65 and demand for healthcare will climb, says Michael Li of American Century Investments.

22/09/2020 The destruction of an indigenous cave shelter was unforgiveable but there are other reasons why the iron ore heavyweight is overvalued.

21/09/2020 Morningstar equity analyst Kristoffer Inton on the outlook for the seven producers under coverage.

18/09/2020 Morningstar's Seth Goldstein singles out three undervalued stocks that span the entire electric vehicle supply chain.

18/09/2020 The bumps and bruises of election time may tempt you to shift your portfolio strategy.

17/09/2020 UK-based Premier Miton's Simon Evan-Cook says the tech rally of 2020 is reminiscent of the dotcom boom, but inflation could be a bigger threat.

16/09/2020 By 2025, the cost of batteries and manufacturing will fall and EV functionality will improve, says Morningstar's Seth Goldstein.

11/09/2020 Estimating the length of your retirement with personalized information will help you save the correct amount.

09/09/2020 Morningstar's Chelsey Tam reveals which stocks and sectors have shone—and which have underwhelmed.

28/08/2020 Products, services, what is what in the world of finance—and how to look out for yourself

24/08/2020 A raft of companies have cut their dividends this year, leaving income investors concerned. But Morningstar's Dan Lefkovitz says there are still plenty of options out there.

18/08/2020 DNR Capital's chief investment officer Jamie Nicol profiles some of the top ten holdings in his Australian Equities High Conviction fund.

17/08/2020 Morningstar's Brian Han explains why he has trimmed his fair value estimate for Australia's dominant telco and the future of its dividend payout.

14/08/2020 DNR Capital's Jamie Nicol reveals how his Australian Equities High Conviction fund finds quality businesses that will endure difficult conditions.

13/08/2020 Put your money to work if you're looking for financial freedom.

10/08/2020 Learn how to picture your goals so you can better reach them.

05/08/2020 Morningstar's Gareth James identifies three sector names trading at attractive discounts in an increasingly 'essential' sector.

05/08/2020 Reports of the strategy's demise are greatly exaggerated, says Morningstar's Christine Benz.

04/08/2020 Investors may assume a fund's yield to determine how much income it will pay, but it's not always so simple, warns Morningstar analyst Rajesh Yadav.

03/08/2020 It depends on your expectations and timeframe. Look at bonds as being portfolio stabilisers—sources of cash flow you can draw on when your equities are down, says Christine Benz.

28/07/2020 When utility stocks plunged during the onset of the pandemic Lazard Asset Management's Warryn Robertson knew it was time to jump in.

24/07/2020 Lazard Asset Management's Warryn Robertson looks at how the pandemic has affected toll roads and airports and what the future of travel holds.

23/07/2020 Morningstar analyst Tancrede Fulop singles out a few companies that have performed well and also led the way in looking after staff.

21/07/2020 New stock-pickers are prone to lose money. Are the lessons worth the price? We ask Morningstar's Christine Benz.

20/07/2020 Elevated iron ore prices have lifted mining company earnings to eye-watering levels but this doesn't make them income stocks, says Morningstar's Mat Hodge.

17/07/2020 Local miners should deliver stellar fiscal 2020 results but such outperformance is unlikely to last, says Morningstar’s Mat Hodge.

17/07/2020 --

16/07/2020 How to make some upgrades during this down time.

16/07/2020 Covid-19 has made the intended public offering impossible, says Morningstar's Andrew Willis.

15/07/2020 JPMorgan's Nicholas Weindling talks opportunities in Japan and reveals the stock that has been his largest holding for almost a decade

15/07/2020 The asset class has a habit of outperforming but Morningstar's Ross MacMillan sees signs of a bubble.

13/07/2020 Rachel Winter of UK fund manager Killik & Co talks payments, social media and investing in her monthly stock pick round-up

09/07/2020 And what we expect to see moving forward.

07/07/2020 Large growth maintains its supremacy in the Morningstar Style Box during a volatile first half for mutual funds.

06/07/2020 Nikko Asset Management's Peter Monson looks for strong sustainable returns and he sees that in Asian stocks that span financial exchanges, computer game makers and condiments suppliers.

02/07/2020 China’s ongoing recovery from COVID-19 presents solid investment opportunities, says Nikko Asset Management.