Get To Know BHP, the world's biggest commodity stock
Summary: BHP is the world’s biggest mining company, with a $145 billion valuation and a strong and diverse revenue stream. From producing iron ore and copper, essential in industrializing the world, to producing coal and petroleum, for critical energy. BHP’s Chief Financial Officer, David Lamont, joins Saxo’s Strategist Jessica Amir to discuss how different the business will look in five years, with its major focus on providing copper, nickel and potash, essential to the green movement, and to keeping the world fed. Although BHP’s success over the decades has been underpinned by China’s urbanization, its future will soon hinge on the globes green transformation and demand for food production. Watch the interview and get to know the world’s biggest diversified commodity group in eight minutes.
If you prefer to read about BHP, instead of watching the 8 minute interview, see below
BHP's earnings results, their best ever. What are the highlights?In the 2022 financial year BHP made an outstanding $65.1 billion in revenue from selling iron ore, copper, coal, and petroleum to different regions across the globe. To the delight of shareholders, BHP recorded its highest ever gross profit of $23 billion, that’s a 26% jump on the prior result. The record result also meant BHP was able to pay out its highest ever dividend on record. Almost a 16% gross dividend yield. As we reported in our Quick Take, the stellar results was bolstered by a 271% jump in the thermal coal price, and a 43% spike in the nickel price. On top of that, BHP's financial results were also thickened by its partial sales of its oil and gas business to Woodside, and from selling some of its coal assets to Stanmore Coal.
BHP is the world's largest iron ore producer, the 2nd largest copper producer & top four nickel producer, making it globally significant
Today, BHP’s revenue is split from 58% iron ore, 27% from copper, the remaining revenue from coal and petroleum. Five years from now, BHP’s revenue split will look very different, with the company wanting to focus on producing more green metals, including copper and nickel, while BHP will also replace its fossil fuel income (coal and petrol) by pivoting to becoming the world’s leader in potash, essential for the food industry. In a separate interview BHP's Chief Executive Officer Mike Henry said: the long-term outlook for copper, nickel and potash is really strong because of the “unstoppable global trends: decarbonization, electrification, population growth, increasing standards of living.”
In 2023 the world’s biggest miner sees commodity demand improving
As per our Quick Take notes, BHP sees China emerging as a source of stable commodity demand in the year ahead. BHP sees supply covering demand in the near-term for copper and nickel. This implies higher pricing can be expected given demand will likely grow quicker than supply. However, BHP says iron ore will likely remain in surplus through 2023. This implies iron ore pricing could remain contained.
BHP's sales to China are soaring
Sales to China have been increasing for half a decade as China has drastically increased its demand for iron ore (the key element in steel). Today sales to China make up 65% of the business. And despite China saying it wants to produce its own iron ore, BHP says China does not have the resources to to do. Thus, China will likely remain dependent on other nations for the key steel ingredient. BHP sees its iron ore business growing in magnitude to cater for growing iron ore demand and sees its business growing from a 290 million tones business to a 330mt juggernaut.
Industrial metal demand will keep growing
BHP's Green transformation
BHP’s push to ‘going green’ involves focusing on copper, nickel and potash. BHP sees these as being the key commodities of the future. David sees strong demand for all these of its key focus commodities in a decarbonized world. And ‘as the world needs to feed itself’ potash and fertilizer will play an important role. BHP will however continue to look at lithium and cobalt, however at the moment, it doesn’t see them fitting its portfolio.
Why BHP is a favorite stock for many investors
In 2022 alone, BHP contributed $72 billion to the global economy. By market size its the 85th biggest company in the globe. It has one of the lowest price to earnings ratios, being 7.14 times (meaning its relatively cheap compared it what it earns). While it's historically produced one of the best dividends, paying a 16% dividend yield. In terms of share price performance, over the last five years its shares have risen 80% (as at the time of publishing August, 22, 2022).
For more information on BHP, please head to the Trading Screen and search BHP.
To see how BHP compares to other commodity stocks, please head to Saxo's Commodity basket.
<Please note, the video interview with David Lamont, was recorded on the day BHP handed down their financial results, Tuesday August 16 2022>
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.