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BHP FY22 Earnings Season Preview

Mining and resources sector

BHP Group Limited (ASX:BHP) is a global resources conglomerate (mining/metals/energy) headquartered in Melbourne. The company focuses on world growth and decarbonisation via resource applications. These include copper for renewable energy, nickel for electric vehicles, potash for sustainable farming, iron ore and metallurgical coal for the steel needed for global infrastructure and the energy transition.

It is the largest listed company on the Australian Stock Exchange (ASX) with a market capitalisation of $197 billion and accounts for approximately 10% of the overall ASX.

BHP is set to report its full-year results for FY22 on Tuesday, 16 August 2022, at 8.30 am Sydney time.

Past earnings / Expectations

BHP announced a 1H22 underlying net profit of US$9.7 billion and a $US1.50 per share interim dividend, bringing total shareholder returns to more than US$22 billion over the past 18 months.

BHP thankfully released an operational review/update for the period ending 30 June 2022 earlier, allowing BHP to explain to investors its quarterly & annual production.

  • BHP produced 1,573.5 KT of copper, down 4% y/y.
  • Annual iron ore production was relatively flat y/y sitting at 253.2 metric tonnes.
  • Metallurgical coal production was down 9% to 29.1 metric tonnes for the year.
  • Energy coal production of 13.7 metric tonnes was down 4% y/y.
  • Nickel production for FY22 was 76.8KT, down 14% y/y

The strong results resulted from rising energy & commodity prices, including critical products like iron ore, coal, nickel & copper, on the back of a supply-driven macro environment with key factors around Russia/Ukraine’s war, China’s zero COVID policy and global recessionary themes on surging inflation.

Bloomberg expects BHP to achieve full-year revenue of US$66.17 billion, an underlying net profit of ~US$21.6 billion, NPAT of ~US$16.4 billion, a full-year dividend of US$3.61 and could generate US$4.25 of earnings per share (EPS).

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Macro Environment

The global commodity outlook has significantly influenced the mining sectors’ financials, including BHP. The Russia/Ukraine war has created tensions in the oil industry due to reduced supply, creating tensions between OPEC+ countries to fill the gap driving prices up, which feeds into BHP’s new merger with Woodside Energy.

FY22 was a very tough year for iron ore miners after it hit an all-time high of $221 USD/T in June 2021 before dropping to a low of $87 USD/T in November 2021, now sitting at $113 USD/T which will impact its iron ore profits. This was on the back of China’s zero COVID policy, knocking its major cities & ports into extensive lockdowns, significantly reducing demand from the largest iron ore importer globally. This was a similar theme for coal and nickel, with a decline in demand for electric vehicle production and rising coal prices leading to a reduction in energy production.

Other general themes include rising costs for the company, which feed from supply chain constraints due to China lockdowns and high inflation.

Rio Tinto’s results out late July gave the Aussie market a preview into what to expect from the mining giants. A mixed macro backdrop for the commodity space saw Rio miss expectations and declare a smaller-than-expected dividend with no special dividend. Curious to know how BHP fares on the back of this.

Other business activities

Merger with Woodside Energy
On 1 June 2022, BHP’s Petroleum business merged with Woodside to create a global top 10 independent energy company. The combined business is expected to have a high-margin oil portfolio, long-life LNG assets and the financial resilience to help supply the energy needed for global growth and development over the energy transition (BHP). This report will highlight this merger’s first year’s performance for the financial year. BHP distributed Woodside shares as an in-specie dividend to BHP shareholders.

OZ Minerals bid
Early last week, BHP made a surprise $8.4 billion bid for copper miner OZ Minerals. The $25 p/s bid was based on OZ Mineral’s last traded price at $18.92 representing a 32% premium, a positive indicator that BHP has its eyes set on expanding its copper exposure/operations. OZ Minerals rejected the bid as they believed it was undervalued, so all eyes are on this situation as the negotiations/bidding may continue. The news saw OZ Minerals’ share price jump up around 28%.

Conclusion

With an uncertain macroeconomic backdrop, changing prices in commodities, China’s continued Zero COVID policy, the ongoing Russia/Ukraine war, Rio’s earnings and high inflation, BHP is expected to miss the earnings expectations this season. Although its merger & acquisition game is strong and expected to be strong as we head into the new financial year, BHP may provide positive forward guidance, directly impacting its share price. Its dividend game is still strong.


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