New Hope Buyback Counters 2025 Uncertainty

This story features NEW HOPE CORPORATION LIMITED, and other companies. For more info SHARE ANALYSIS: NHC

A share buyback surprise and juicy half year dividend have injected fresh enthusiasm into New Hope’s share price.

-Latest results affirm positive cost structure for New Hope
-Thermal coal prices down but not out
-Capital management a balancing act

By Danielle Ecuyer

New Hope Corp’s ((NHC)) first-half results for the fiscal 2025 year had enough good news to pull the bottom fishers in, with shares staging a noticeable rally post the release of financials and a fresh share buyback.

Unanimously, the $100m share buyback to be completed over the next year was welcomed as a pleasant surprise, with the 19c dividend per share slipping between “as expected” to “slightly higher than forecast” among FNArena daily monitored brokers.

As is usually the case, underlying earnings (EBITDA) of $517m were pre-reported. Morgans viewed the net profit after tax as better than forecast by 7%, including a $122m impairment reversal for the discontinuation of legal action against New Acland’s expansion plus an impairment of -$53m for its Bridgeport energy business.

Macquarie saw the underlying net profit after tax result as a slight miss and below consensus by -4%, while acknowledging the net profit after tax included the as-described one-off items.

This analyst pointed to slightly lower-than-forecast net operating cash flow, by -3% against consensus, but in line with Macquarie’s expectations. A decline in capex by -14% versus consensus resulted in higher-than-forecast free cash flow by 6%. Both met the broker’s estimates.

Citi explains Bengalla achieved “steady state” operations of a 13.4mtpa run rate following completion. Free on-board costs declined by -16% to US$68.3/t,  and the mine is on schedule to achieve production of between 8.1 to 8.7mt in FY25.

The conclusion of the Oakey Coal Action Alliance’s legal challenges permits New Acland to expand to 5mtpa by FY27, with management focusing on speeding up infrastructure works to gain access to Manning Vale West pit for early 2026, Citi highlights.

New Acland cash cost is expected to be competitive with Bengalla’s cash costs. In the half-year, New Acland unit costs of US$60/t were lower than Goldman Sachs’ estimate of around US$80/t due to capitalisation of an expense of around -$38m for the Willeroo pit box-cut.

New Hope also increased its shareholding in Malabar Resources by 3% to 22.97% over the first half at a cost of -$32m.

Management lowered sustaining capex guidance to -$185m-$225m from -$200m-$245m for Bengalla, due to timing around the mine fleet replacement. Both production and cost guidance remain unchanged.

The company ended the period with cash and fixed income investments of $805m and debt (including leases) of $361m, leaving a net cash position of $444m, Bell Potter notes.

While welcoming the buyback, Bell Potter expects management to retain cash against the backdrop of weaker coal prices to fund growth opportunities as they arise.

Morgans believes the buyback is prudent at current share price levels ($4.03) and could be EPS accretive by an estimated 5% in FY26. This analyst does not believe New Hope will seek out external M&A.

The stock’s valuation sits at a smaller discount to key comparisons, Whitehaven Coal ((WHC)) and Stanmore Resources ((SMR)), which is attributed to the margin buffer and a more robust balance sheet which can generate franked dividends through the cycle, Morgans states.

In contrast, Goldman Sachs questions the buyback decision, stating a year earlier management highlighted a dividend policy to shareholders rather than buybacks. The share price sell-off may have just been too enticing for directors.

FNArena’s consensus target price declined by -43c to an average of $4.688, with two Buy-equivalent ratings and two Hold-equivalent ratings from brokers monitored daily.

Among non-daily monitored researchers, Goldman Sachs has a Sell rating alongside a $4.30 target price. Morningstar has a fair value estimate of $6.10 and sees the shares as “materially undervalued.”

Coal prices challenged in 2025

In the run-up to the company’s first-half earnings report, investors were more than happy to sell down shares in New Hope Corp to a 52-week low of $3.64 in early March from an October 52-week high of $5.30, as high-calorific coal prices slumped from levels around US$126.75/t in December 2024.

Ord Minnett noted in January thermal prices were being impacted by soft Asian demand and oversupply. At that stage, prices were around US$115/t. The broker forecasts prices to rebound over 2025 to around US$130/t on average.

Barrenjoey explains high-calorific value thermal coal prices declined by a further -18% in February, coming in at US$102/t FOB, which suggests to this analyst oversupply remains an issue for the market.

Goldman Sachs’ global commodities team forecasts lower thermal coal prices in 2025, resulting from weaker global import demand, expanding supply, and ongoing efforts to decarbonise.

This commodities team specifically has a “weakening” outlook for Chinese imports, resulting from growth in domestic production and anticipated record-high inventories. Expanding export capacity from Indonesia, Australia, and Russia is also expected.

Against the current spot price of around US$100/t, Goldman Sachs forecasts the price to average around US$120/t in 2025 for the Newcastle thermal coal price (NEWC), which is viewed as the benchmark for high-energy (calorific) thermal coal.

New Hope remains a price taker, and as recent share price volatility would show, riding the commodity cycle is not for the fainthearted when the shares fall over -30% as the price of the exposed commodity, thermal coal, declines just over -20%.

Bell Potter remains cautious on coal prices for 2025 and believes the market rebalancing necessitates further supply cuts.

Morningstar expects any supply challenges to be borne by the higher-cost thermal coal producers and assumes average coal prices of around US$145/t from 2024 to 2026, with a forecast mid-cycle price of circa US$105/t from 2028.

As an aside, coal mining this year is impacted by weather conditions in major supply markets.

New Hope, by way of history

New Hope is predominantly a thermal coal producer and is primarily exporting to Asia, although the company doesn’t disclose specifics.

The company also owns and operates Queensland Bulk Handling, a coal export terminal in Brisbane, which was commissioned in 1983.

In 2001, New Hope developed the New Acland mine, which is situated around 16 km northwest of Oakey. New Acland is an open-cut mine.

The company also has an 80% interest in the Bengalla mine, NSW, located near Muswellbrook. Bengalla is an open-cut mine. New Hope acquired its initial 40% stake in 2016 and a further 40% in 2018.

Looking ahead, the development of New Acland Stage 3 will leave New Hope reliant on thermal coal, according to Morningstar research.

The analyst forecasts the company’s equity sales of coal to lift to around 13m metric tonnes in FY29 from around 8.7m in FY24, due to the ramp-up of New Acland and explains New Hope operates in or around the lowest quartile of the thermal cost curve.

The company is positioned to capitalise on demand for high-quality thermal coal (high energy, low ash), underpinned by Asia’s growth in young, high-energy, low-emission coal-fired power stations.

Morningstar also points to additional resources in Queensland with a 23% stake in Malabar Resources, which owns NSW’s Maxwell metallurgical coal mine. The mine started production in 2023 with an expected mine life of over twenty years and unit costs at the bottom of the industry cost curve.

Malabar is also seen offering slight diversification into metallurgical coal.

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