There may still be be challenging times ahead as the pandemic continues to cast an uncertain outlook
BHP releases resilient results despite a difficult start to the year
- Group releases relatively resilient results albeit below analyst estimates
- Iron ore once again accounted for most of the profits, roughly 66% of the total
- Management acknowledges strong position given circumstances and opts for $0.55 final dividend taking the final year total to $1.20, 10% lower than 2019
- Recommendation: Relationship still strong with China and longer-term prospects for premium coal to help reduce emissions remaining attractive we maintain our ‘BUY’ recommendation
BHP released relatively resilient results this morning albeit below analyst estimates. Given the state of global economies over the second half of the fiscal year, BHP’s operations have held up relatively well, generating good free cash flow from continuing operations. Iron ore once again accounted for most of the profits, roughly 66% of the total. The group’s balance sheet held up relatively well with net debt coming in at roughly £12.4bn, lying towards the lower end of the target range. Management acknowledged their strong positioning given the circumstances, upping their policy minimum 50% pay-out ratio to roughly 73% and opting for a $0.55 final dividend taking the final year total to $1.20, 10% lower than the previous year.
It is clear the quicker than expected Chinese recovery has helped steady the ship for BHP today, however there is no question 2020 is going to remain a challenging year with most major economies around the world expected to contract. Furthermore, the outlook heading into 2021 remains uncertain and could affect the business assumptions in place for a recovery dragging operational disruption further into FY2021.
Nevertheless, the group has highlighted its resilience and benefits of a more streamlined cash-efficient business following their restructuring several years ago and has reinforced our view that the company is better equipped to ride through different stages of the commodities cycle. With relationships still strong with China and longer-term prospects for premium coal to help reduce emissions remaining attractive, we maintain our ‘BUY’ recommendation for investors willing to accept a medium level of risk.
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