Financial Insights on commodity giant BHP - Disappointing HY to Dec 2022, but it sees a turnaround in 2023 and into 2024

BHP, the world's largest commodity company guides for a stronger outlook underpinned by higher commodity prices ahead - and readies its balance sheet to become a copper giant 

The world’s biggest miner, BHP handed down its financial results today  - showing profits declined greater than expected – in the six months to December 2022 – but BHP’s CFO told Saxo’s Jessica Amir - it sees a recovery in metal pricing in the second half year and into next year - and the price recovery has already begun. This is also our view at Saxo - we also believe 2023 is poised for higher commodity prices amid China's economic revival- as we expressed in our Quarterly Outlook. 

BHP's half year results to 2022 end were impacted by lower realized prices in copper, iron ore and coal across the last six months of 2022. Wet weather also impacted its coal business’ production and pushed up unit costs – plus there were difficulties in securing enough staff. This resulted in underlying attributable profit falling to $6.6 billion - from continuing operations - vs the $6.96 billion expected by consensus. 

BHP’s interim dividend was trimmed to $0.90 per share – down from last year’s record $1.50 per share. Still - BHP’s payout ratio is 69% and that’s BHP’s 5^th highest dividend on record. At Saxo we also believe the lower dividend payout reflects that BHP is readying itself for the $9.6 billion takeover of Oz Minerals. If approved by Oz Minerals in April, the takeover will occur in May.

As for BHP’s positive outlook strengthening – it sees demand picking up in China, but also in India - and this offsetting the slowdown in trade with the US, Japan and Europe.

All in all, BHP guided for mining production costs to be markedly higher than before the Covid-19 pandemic – amid higher energy, labour and other input costs. But we believe BHP could offset such higher costs - amid rising commodity demand - which would underpin prices in iron ore, met coal, and copper -  while supply issues remain and the green transformation picks up.

BHP’s divestment of its two thermal coal mines should also return capital to the business and allow BHP to focus on iron ore, copper, nickel, potash and coking coal.

For more on BHP refer to our Quarterly Outlook. Or refer to Saxo’s Australian Resources equity theme basket or Saxo’s broader Commodity equity theme basket.

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