Can Santa Bring Me A Lump Of Coal This Year Please?

22nd Dec '22 by Elio D'Amato

8 comments 1256 reads

In this piece we delve into a sector with a disproportionate amount of high StockRank stocks, which is of course the Coal sector. And is it any wonder, they're all delivering quality earnings, they’re cheap and growth has gone through the roof. While the main incumbents like Whitehaven Coal (ASX:WHC) and New Hope (ASX:NHC) are well known, this Queensland operator that we are about to discuss is not as well established, however investors have supported the thematic and from a market cap perspective, it is not as large as the big guys.

Shooting fish in the Coal Barrel

One of the best performing sectors for 2022 was the Energy sector, in large part because it has been a stellar time to be exposed to the sector. A looming energy crisis in Europe on account of the war in the Ukraine has sent Thermal Coal prices soaring and whilst the mention of dirty coal can evoke environmental fears, this year, even the most naughty of investors would be happy with a lump of coal under the Christmas tree.

But while the well worn path of ASX:WHC Whitehaven Coal and ASX:NHC New Hope Coal has been documented by analysts one pocket of potential upside lies in Terracom (ASX:TER) . TER own a portfolio of operating assets in Australia and South Africa.

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In Australia their operations reside in Queensland with tenements spanning an estimated area in excess of 9,500 square kilometres. This includes the Blair Athol project, its main producing mine that it acquired and restarted in 2017.

The company also has South African assets which it acquired when it purchased Universal Coal Plc (Universal) as at 30 June 2020.

Both these acquisitions are proving to be very shrewd. The South African purchase for example occurred when Thermal Coal based on the Newcastle pricing was just over $50 pt, today the Dec 22 contract is over $400pt.

StockRank score

Terracom (ASX:TER), like many other coal miners, has a very high StockRank(™) score.

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This is due to the quality of earnings, strong momentum in prices and earnings upgrades and the dirt cheap price they are trading at (most likely on account of the ESG discount). It's certainly…

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Sagie5

23rd Dec '22

Thanks Elio,

Merry Christmas and a happy, healthy and prosperous New Year to you ,Chris and your families.

Have a good break. The tremendous support this year with guidance and education was and still is, a pillar of strength. Look forward to a long association with you guys as you'll are awesome.Thanks for intro to Stockopedia

Warm regards

Sagie

Elio D'Amato

We think you and Stockopedia are all awesome too. So it looks like the felling is mutual. Enjoy the break Sagie. We've all earned it this year.

Badgersbrook

24th Dec '22

Hi Elio

Any thoughts on Yancoal Australia (ASX:YAL)?

Wonga

Hi Elio and Chris,

Please keep the stock analysis coming. The absence of local editorial and stock analysis was definitely the missing ingredient in Stockopedia Australasia and the reason I did not renew my membership before.

The Momentum Monday with stock suggestions is also great! I too am a convert to momentum investing, applying both fundamental and technical analysis. I can see how Stockopedia can be so useful in seeking out the right stocks for this approach to investing.

Thanks,

Chris Batchelor

27th Dec '22

Hi Wonga,

We will definitely be continuing with the stock analysis. Glad to see you have come back to Stockopedia. It is a really solid platform and will only get better with the local presence.

Have a great New Year.

Chris

28th Dec '22

Yancoal Australia (ASX:YAL) owns coal mines in New South Wales, Queensland, and Western Australia. It was recently the subject of takeover talk with major shareholder China’s Yankuang Energy. Yankuang already own over 62% of YAL.

But in September they ended discussions for the potential acquisition of remaining shares citing ‘recent market conditions’. Which sounds strange given coal prices at the time were quite high (as a reminder the Board knocked back the offer of $1.8B, which at the time was a 16% discount (yes DISCOUNT) to the price (at US$3.60). Price has since recovered and surpassed the point back then. But it was a shock.

Chances are the low-ball offer was to get someone who wanted out, out. But the discount was unusual and it is one of the reasons why I have avoided the company till now . Yankuang has such a major interest it will play a large role in its future direction. Whereas if you want coal exposure without the vested interests, there are plenty others out there

Hi Elio,

Coal didn't have a good day yesterday. WHC -7.22%, TER -4.59% and NHC -1.68%. Any thoughts as to why and any reason NHC has a relatively minor fall?

Albert

29th Dec '22

Nothing out of the ordinary, other than often stocks that have had the best runs in price have the heaviest pullbacks when everyone gets nervous. And the market at the minute is very nervous.

Can Santa bring me a lump of Coal this year please?

Shooting fish in the Coal Barrel

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Elio D'Amato

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