Interactive Investor

ii view: BHP profits fall but confidence in China remains

A wide array of mined commodities and sat on a relatively attractive dividend yield. Buy, sell, or hold?

22nd August 2023 13:14

by Keith Bowman from interactive investor

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Full-year results to 30 June

  • Revenue down 17% to $53.8 billion
  • Adjusted attributable profit down 37% to $13.4 billion 
  • Final dividend of $0.80 per share, down from $1.75 per share
  • Total dividend for the year down 48% to $1.70 per share 
  • Net debt of $11.2 billion, up from $0.3 billion

Chief executive Mike Henry said: “Our financial results for the year were strong, underpinned by reliable production together with capital and cost discipline as we managed lower commodity prices and inflationary pressures. 

“Our balance sheet is robust and deliberately positioned to support portfolio growth in commodities the world needs for population growth, urbanisation and decarbonisation.”

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ii round-up:

Mining mammoth BHP Group Ltd (LSE:BHP) today detailed lower sales and profits given reduced global economic demand under increased borrowing costs with the cut to the dividend marginally more than analysts had expected. 

Lower commodity prices underpinned a 17% fall in full-year revenues to $53.8 billion, helping to reduce adjusted profits by just over a third year-over-year to $13.4 billion and leaving the total dividend payout for the year at $1.70 per share compared to the prior year’s $3.25 per share.

Shares for BHP fell by close to 1% in early UK trading having come into this latest news down around 14% during 2023. That’s similar to copper miner Antofagasta (LSE:ANTO) and slightly better than the 20%-plus falls made by Rio Tinto (LSE:RIO) and Glencore (LSE:GLEN) year-to-date.

Accompanying BHP management outlook comments pointed to its expectations for China and India to remain relative sources of stability for commodity demand, although with the current labour market tightness continuing to impact its cost base throughout the 2024 financial year ahead. 

China's economic trajectory is thought by BHP to be contingent on the effectiveness of the government’s recent policy measures, while India’s growth is expected to prove buoyant due to strong construction activity. 

BHP’s final dividend of $0.80 per share was down from last year’s $1.75, reducing the total annual payout to $1.70 per share compared to the prior year’s $3.25 per share. 

A first-quarter production update is scheduled for 18 October.  

ii view:

Tracing its roots back to 1851, BHP is today a major diversified mining company operating in more than 90 locations across the world. Commodities extracted include iron ore, copper, nickel, potash and metallurgical coal. Countries of operation include Australia, the US, Canada, Chile and Brazil. Climate change is now part of its corporate strategy and is assessed under portfolio decisions. 

For investors, economic outlook uncertainty, particularly for its biggest customer China, cannot be ignored. China accounts for around half its sales. The West’s now more strained relationship with China warrants consideration. As do safety issues and the death of two staff members over this latest year, along with the environmental impact mining can have. 

On the upside, BHP’s diverse commodity portfolio contrasts with more-focused assets mined at rivals such as Fresnillo (LSE:FRES). A hoped-for peak in US interest rates may now be close. Measures are being taken by China’s government to aid economic strength, while an increased focus is now being taken in relation to environmental, social and governance (ESG) credentials. 

For now, and while the uncertain economic outlook offers room for caution, a historic and estimated future dividend yield of close to 6% should keep income-oriented investors, at least, patient. 

Positives

  • Exposure to a diverse portfolio of commodities
  • A focus on shareholder returns

Negatives

  • Economic outlook uncertainty
  • Western tensions with major customer China

The average rating of stock market analysts:

Strong hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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