Analysts mixed on BHP results
Analysts have given a cautious welcome to Mike Henry’s first set of financial results since taking on BHP’s top job.
Analysts have given a cautious welcome to Mike Henry’s first set of financial results since taking on BHP’s top job, praising his focus on operational focus but sounding a warning on some of the company’s ageing assets.
BHP’s underlying earnings and profit — $US12.1bn ($18bn) and $US5.2bn respectively — were broadly in line with analysts’ consensus estimates, but its US65c interim dividend, while the second-highest declared on record, fell well short of the US71c consensus estimate.
Macquarie analysts noted BHP had taken a “conservative” approach to its interim dividend, paying out 63 per cent of underlying profit — above the 50 per cent minimum in its dividend policy — amid uncertainty around the impact of the coronavirus.
The performance of BHP’s iron ore operations remains the company’s greatest strength, with multiple analysts noting that BHP’s Pilbara network had emerged from the latest cyclones unscathed while chief rival Rio Tinto had downgraded production expectations after Cyclone Damien. But some also sounded a warning on BHP’s other commodities, with costs drifting upwards in its petroleum division and thermal coal — on the market — slumping to a loss in the half.
“An area of real weakness was NSW Energy Coal where costs increased to $US59.50 a tonne on lower output/lower washery yields for an EBIT loss of $US94m,” Citi said in a client note. Macquarie also noted the first-half loss at BHP’s Mount Arthur thermal coal mine, suggesting it was the first time the division had ever reported a loss.
“BHP’s Western Australian iron ore business remained the dominant earnings contributor, accounting for 59 per cent of EBITDA and 70 per cent of EBIT,” Macquarie said.
“We note that copper and petroleum contributions to group EBITDA remained largely unchanged at about 20 per cent and 13 per cent respectively, while the contribution from coal declined to just 7 per cent in the half year.”
And Citi noted that, despite BHP’s petroleum division getting solid support from the incoming chief executive on its earnings call, and having some potentially significant growth prospects, costs at its existing operations are expecting to drift upwards in coming years.
Citi said that in the medium term, BHP expects an increase in unit costs to the $13/boe range as a result of natural field decline.
BHP shares closed down 28c on Wednesday at $38.50.
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