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BHP

BHP FY19 results – Broadly neutral

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

BHP (ASX: BHP) is a global resource company. BHP specialise in extracting and processing minerals, oil and gas mainly in Australia and the Americas. BHP is one of the largest producers of iron ore, metallurgical coal and copper and a significant producer of petroleum products. BHP is the second largest company listed on the ASX and has a market capitalisation of A$106.8 billion.

bhp

What are the results from BHP FY19?

Today (Tuesday 20 August 2019) BHP released its FY19 annual results. The main points are as follows (total operations):

  • Attributable profit for FY19 is US$8,306 million, up 124 per cent from FY18.
  • Underlying basic earnings per share for FY19 is 178.1 US cents, up 5 per cent from FY18.
  • The full year dividend per share for FY19 is 133.0, up 13 per cent from FY18.
  • Underlying attributable profit for FY19 is US$9,124 million, up 2 per cent from FY18.

BHP announced a final dividend of US$0.78 cents per share. This is above BHP’s dividend policy of a 50 per cent minimum pay-out ratio.

Specific results on company operations are as follows:

  • Revenue from petroleum for FY19 is US$5,930 million, up 9.5 per cent from FY18.
  • Revenue from copper for FY19 is US$10,838 million, down 15 per cent from FY18.
  • Revenue from iron ore for FY19 is US$17,255 million, up 16.5 per cent from FY18.
  • Revenue from coal for FY19 is US$9,121 million, up 2.6 per cent from FY18.
  • Total group revenue for FY19 is US$44,288 million, up 2.6 per cent from FY18.

 

What were the drivers of this result?

Petroleum:

  • The increase in petroleum revenue was mainly attributed to an average higher price for FY19, crude and condensate oil US$66.59/bbl (2018 US$60.57/bbl).

Copper:

  • The reduction in revenue from Copper is mainly attributed to a weaker average price of copper for FY19 (US$2.6/lb in FY19 compared with US$3.00/lb in FY18). Further, production of copper fell by 4 per cent in FY19 compared with FY18.
  • In addition, there was decrease volumes at Pampa Norte site after a fire at the electro-winning plant at Spence and heavy rainfall.

Iron Ore:

  • The positive result in iron ore is mainly attributed to an average higher price (US$66.68/wmt (FOB) in FY19 compared with US$56.71/wmt (FOB)). In additional, increased sales volume supported by record production at Jimblebar, higher volumes reflecting the expiry of the Wheelarra joint venture.

Coal:

  • The modest increase in the coal result is mainly attributed to increased sales volume support by record production at South Walker Creek.

 

What is the outlook for BHP?

The global economy grew by around 3¾ per cent in 2018. BHP expects global growth to slow and be in the range of 3¼ - 3¾ per cent in 2019. The continued proliferation of trade protectionism amongst the largest world economies creates further economic and political uncertainly moving into FY20. This policy of trade protectionism could ease demand for commodities, resources and energy within the major economies.

In terms of the outlook for commodity prices, Dr Huw Mckay (Vice President, Market Analysis and Economics) noted that BHP expects further demand in emerging and developed Asian economics such as China, India and ASEAN. Additionally, China’s one-belt one-road initiative is expected to provide additional demand and the ability to BHP to new markets in the region. Dr Mckay also noted “Population growth and rising living standards are likely to drive demand for energy, metals, and fertilisers for decades to come”.

 

What is the market reaction?

The initial market reaction to BHP FY19 is neutral. BHP share price is down around 0.6 per cent and is currently trading at around A$36.01 (11.30am, 20 August). This downward movement could be due to the small fall in the iron ore price overnight rather than the FY19 results.  BHP has a P/E ratio in the low-twenties and an annual dividend yield of 4.6 per cent (fully franked).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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