Investment Thesis
- Based on our blended valuation (consisting of DCF, PE-multiple & EV/EBITDA multiple), BHP is trading at fair value but on an attractive dividend yield.
- Commodities prices especially iron ore prices deteriorate on lower demand from China.
- Focus on returning excess free cash flow to shareholders in the absence of growth opportunities (hence the solid dividend yield).
- Quality assets with competitive cost structure and leading market position.
- Growth in China outperforms market expectations.
- Management’s preference for oil and copper in the medium to long-term.
- Solid balance sheet position.
- Ongoing focus on productivity gains.
Key Risks
- Poor execution of corporate strategy.
- Prolonged impact on demand if coronavirus is not contained.
- Deterioration in global macro-economic conditions.
- Deterioration in global iron ore/oil supply & demand equation.
- Deterioration in commodities’ prices.
- Production delay or unscheduled site shutdown.
- Movements in AUD/USD.
FY21 Results Highlights
- Profit from operations of US$25.9bn, up +80%; Underlying EBITDA of US$37.4bn (at a record margin of 64%); was driven by record volumes at Western Australia Iron Ore (WAIO), Goonyella and Olympic Dam, and Escondida maintained average concentrator throughput at record levels.
- Attributable profit of US$11.3bn.
- Underlying attributable profit of US$17.1bn, up +88%.
- Strong free cash flow of US$19.4bn, reflects higher iron ore and copper prices, and a strong operational performance.
- Capital and exploration expenditure at US$7.1bn was down -7% and within guidance; with BHP delivering first production at four major development projects, ahead of schedule and on budget, as well as BHP acquired an additional 28% working interest in Shenzi in November 2020.
- Net debt at US$4.1bn, compares favourably to US$12.0bn in FY20.
- The Board declared a final dividend of US$2.00 per share (which includes an additional amount of US$0.91 per share) and is above the 50% minimum payout policy. This equates to total dividends of US$3.01 per share, which equates to 89% payout ratio.
- Underlying return on capital employed strengthened to 32.5%.
- BHP reported a total income statement charge of US$1.2bn (after tax) for the Samarco dam failure in FY21 (recognising it as an exceptional item).
Company Profile
BHP Group Limited (BHP) is a diversified global mining company, with dual listing on the London Stock Exchange and Australia Stock Exchange. The company’s principal business lines are mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel and copper concentrate. The company also has petroleum exploration, production and refining.
(Source: BanyanTree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
