Are Thungella Assets shares going to yield 45% this yr?


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Risk reward ratio / risk management concept

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Since itemizing in June 2021, Thungella Assets (LSE:TGA) shares have risen by over 500%. They peaked at 1,823p in September final yr. Since then, they’ve misplaced near 50% of their worth. However they’re up 20% in comparison with March 2022.

Nonetheless, the corporate is rising quickly, and pays beneficiant dividends. This makes me wish to examine additional.

What does it do?

Thungella has pursuits in seven coal mines in South Africa and has no intention of transitioning to scrub power. In September, the administrators stated unequivocally that they had been “not centered on diversification into the renewable power sector“.

Its future prospects are due to this fact completely dependent upon the demand for coal.

The way forward for coal

Extra coal was produced on the earth final yr than ever earlier than. Russia’s invasion of Ukraine led Europe to revert again to dirtier strategies of electrical energy era.

However the Worldwide Power Company isn’t anticipating a speedy decline in coal manufacturing any time quickly.

World coal manufacturing Tonnes (bn)
2022 8.318
2023 (forecast) 8.365
2024 (forecast) 8.267
2025 (forecast) 8.223

Sturdy demand has saved coal costs excessive. In 2021, the common value was $124 per tonne. For the primary 11 months of 2022, this greater than doubled to $277. For comparability, the present spot value is near $150.


Unsurprisingly, the monetary efficiency of Thungella mirrors the rising coal value.

Measure / half-year 30.6.20 (Rm) 31.12.20 (Rm) 30.6.21 (Rm) 31.12.21 (Rm) 30.6.22 (Rm)
Income 1,657 2,093 10,046 16,236 26,176
Revenue / (loss) (122) (240) 351 6,587 9,630
Adjusted working free money circulation (248) (1) (1,682) 5,605 8,934
[R = rand. Rm = million rand. £1 = R22 at current exchange rates]

So it has been capable of reward its homeowners handsomely.

The administrators have a coverage of returning “a minimum of 30%” of working free money circulation to shareholders. In its brief existence, the corporate’s paid two dividends. Each of which have considerably exceeded the administrators’ goal.

Date paid Monetary yr R (£) per share % of adjusted working free money circulation
23 Might 2022 2021 18 (0.91) 63
10 October 2022 2022 60 (3.00) 92

Traders will know earlier than the tip of the month what the ultimate dividend might be for 2022. Even when Thungella ‘solely’ pays 50% of what it did for the primary half, its shares are at the moment yielding an astonishing 45%. If the dividend is matched, the yield can be a mind-blowing 60%.

It’s vital to do not forget that as a result of the corporate relies in South Africa, withholding tax (as much as 20%) might be deducted from any dividends paid. Additionally, the dividend is said in rand, so the change charge will have an effect on the quantity acquired in sterling.

What do I feel?

Regardless of the wonderful dividend, I’d be nervous about investing within the firm. For a begin, its product is a pollutant.

Additionally, Thungella has warned concerning the poor infrastructure in South Africa. Final yr, the nation’s railways skilled a 12-day strike. There was additionally a derailment which took 10 days to clear. This impacts the corporate’s capability to get coal to the port, from the place it’s exported.

The nation additionally suffers frequent energy cuts.

Each of those elements have adversely impacted manufacturing through the second half of 2022. In December, the agency launched a buying and selling assertion indicating that coal output for 2022 was prone to have been 20% decrease than in 2021. Even so, the traditionally excessive coal value will compensate for among the misplaced manufacturing.

Trying ahead, the coal value is prone to be nearer to 2021 ranges. The corporate’s efficiency in 2023 is due to this fact going to be extra in keeping with two years in the past, when the dividend was far much less beneficiant.

For these causes, I’m not going to take a position in the intervening time.


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