February 12

BHP Group (BHP) : Big Australian

BHP Group is a diversified natural resources company. BHP’s principal business lines are mineral exploration and production. The company’s assets, operations and interests include copper, iron ore, nickel, metallurgical coal and potash. BHP’s FY24 second-quarter sales were in line with our expectations, and the company reiterated FY24 guidance, except for metallurgical coal. FY24 production will likely be lower and unit cash costs higher than originally guided. We lower our FY24 operating earnings forecast by 3% post the quarterly report, but our longer-term forecasts remain largely intact, and the near-term decrease is immaterial to our unchanged $43 per share fair value estimate. The company’s Western Australia iron ore operations (WAIO), are the main driver of earnings.

First-half FY24 sales were roughly 127 million metric tons, similar to last year. BHP’s share of WAIO is on track to meet our unchanged forecast for FY24 of 255 million metric tons. Average prices of US$104 per metric ton for the first half of FY24 were lower than our forecast for FY24 of circa US$120. This was based on our recently updated price assumptions which reflect materially higher near-term iron ore futures in recent months We continue to forecast WAIO unit cash costs of around US$18–$19 per metric ton for FY24. BHP’s iron ore business accounts for about 65% of our FY24 operating earnings forecast. We forecast FY24 EPS of US$3.31, which would be around 25% higher than last year, driven by higher iron ore prices. Our forecast is for FY24 dividends of US$1.80 ($2.75) per share, about 6% higher than last year. This assumes a 55% payout ratio, modestly higher than BHP’s target minimum payout ratio of 50%.


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