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BHP

BHP Group – HY20 Report Up On Increases In Iron Ore And Copper But No New News

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

BHP Ltd (ASX: BHP) is Australia’s largest resource company that specialises in extracting and processing minerals, oil and gas. BHP main operations are within Australia and the Americas. BHP has a market capitalisation of A$113 billion.

 

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What are the key features of BHP HY20 results?

  • Revenue from continuing operations for HY20 is US$22,294 million, up 7% compared with the corresponding period.
  • Net profit after tax attributable to the members of BHP group is US$4,868 million, up 29% compared with the corresponding period.
  • Capital and exploration expenditure for HY20 is US$3,795 million, up 8% compared with the corresponding period.
  • Basic earnings per share for HY20 is US96.6 cents, up 36% compared with the corresponding period.
  • Interim dividend per share for HY20 is US65.0 cents, up 18% compared with the corresponding period.

 

What are the key drivers of this result?

BHP business operations are as follows:

  • Petroleum

Underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) was down around 30% compared with the corresponding period. This was mainly due to a lower average realised price of crude and condensate oil of US$60.64/bbl (HY19: US$69.91/bbl). Additionally, total production was down due to planned maintenance at the North West Shelf and the impact from Tropical Storm Barry in the Gulf of Mexico.

 

  • Copper

Underlying EBITDA was up 21% compared with the corresponding period. This was mainly attributed to the higher average realised price of copper of US$2.60/lb (HY19: US$2.54/lb). Additionally, BHP reported record average concentrator throughput at the Escondida operation and higher copper volumes at Olympic Dam.

 

  • Iron Ore

Underlying EBITDA was up 64% compared with the corresponding period. This was attributed to the higher average realised price of US$78.30/wmt (HY19: US$55.62/wmt). Record production volumes at Jimblebar attributed to this result as well.

 

  • Coal

Underlying EBITDA was down 55% compared with the corresponding period. This was attributed to lower average prices for hard coking coal, US$154.01/t (HY19:US$197.86/t), weak coking coal US$101.06/t (HY19:US$134.12/t) and thermal coalUS$58.55/t (HY19:US$84.15/t). Additionally, decreases volumes at NSWEC and Queensland Coal due to planned major wash plant shutdowns attributed to the result.

 

What is the outlook for BHP?

The largest driver of the increase in profit for BHP in the half was due to iron ore. BHP has benefited from the strong iron ore price throughout 2019 calendar year. The spot price of iron ore peaked in July 2019 at around US$125.00. The higher than average iron ore price (particularly in 2019) reflects continued strength of Chinese demand and problems with tailing dams in Brazil causing Brazilian production of iron ore to fall significantly in late 2018 and early 2019. The current iron ore price also reflects that Australian iron ore producers are unable to increase supply in the short term without significant capital investment.

The question now for investors is will the iron ore price remain strong moving into 2020. The Brazilian iron ore producer Vale is expecting iron ore production in 2020 to reach pre tailing dam collapse levels. This could increase total supply of iron ore in the global market reducing the price. Another point of concern for Australian iron ore producers is the coronavirus outbreak in China. The outbreak could weaken Chinese economic growth and demand for iron ore to produce steel. Investors could closely monitor these supply and demand issues for iron ore moving into 2020, and the effect they may cause on Australian iron ore producers such as BHP. BHP notes:

If the viral outbreak is not demonstrably well contained within the March quarter, we expect to revise our expectations for economic and commodity demand growth downwards.

 

Investors should closely monitor the $US prices of petroleum, copper, iron ore and coal to determine the short to medium-term outlook for BHP.

 

What is the market reaction?

The market reaction to BHP HY20 result is slightly positive. BHP is up 0.5% and is currently trading at A$38.68. BHP has a forward P/E ratio in the low-teens and an annual dividend yield of around 5%.


 

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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