BHP Group Limited

Capabilities to Generate Shareholder Value and Returns in the long Run: The Chief Executive Officer of BHP Group Limited (ASX: BHP) named Mr. Andrew Mackenzie stated that the company’s focus remains to maximise the cash flow, maintain the capital discipline and increase value and returns. He added that the company’s strategy provides a framework to make the most of the portfolio while developing the options in order to secure future success. Since the 2016 beginning, the company strengthened the balance sheet via US$16 billion reductions in the net debt, reinvested US$20 billion towards its business and returned over US$25 billion to the shareholders. The company stated that its capital allocation framework is transparent, and it embeds discipline.


Returns (Source: Company Reports)

In another update, BHP noted the media reports with respect to the group claim in the UK in relation to Samarco dam failure on November 5, 2015. BHP confirmed that BHP Group Limited and BHP Group Plc have been served with the legal proceedings filed in the Business and Property Courts of Liverpool. BHP has intentions to defend the claim. In the nine months to March 2019, the production in the petroleum business stood at 92 MMboe. The company stated that all the major projects under development are tracking as per the plan. In Petroleum, Atlantis Phase 3 project in the US Gulf of Mexico got approved and the Bélé-1 exploration well in Trinidad and Tobago encountered hydrocarbons during March 2019 quarter. Recently, the company’s management had stated that they have increased volumes, reduced the costs as well as kept the people safer at work. These actions have lifted the return on capital by approximately 50%. The management stated that they have shaped its portfolio around the commodities with attractive fundamentals and the company possesses exploration licences and development options in the world’s premier copper, oil and potash basins.

What to Expect From BHP: The top management of BHP stated that the company happens to be well placed in short, medium and long term and has strict financial discipline and transparent and consistent approach when it comes to capital allocation.  The company has a resilient portfolio, transformation agenda and a suite of options and ideas to create future value. The company stated that iron ore production guidance has been decreased and is now in the range of 265 Mt and 270 Mt (100% basis), which reflects the impacts of Tropical Cyclone Veronica. The unit costs for Western Australia Iron Ore are anticipated to be below US$15 per tonne and the unit costs for New South Wales Energy Coal are expected to be around US$51 per tonne, following changes with respect to the mine plan.

Stock Recommendation: The stock of BHP Group Limited has delivered the returns of -6.60% in the span of previous one month while, in the time frame of past three and six months, the stock delivered the return of 2.36% and 17.25%, respectively. As per the ASX, the company’s P/E ratio stood at 25.270x and its annual dividend yield stood at 4.51%. As on May 14, 2019, the market capitalisation of BHP stood at ~$108.79 billion. The company’s stock price is trading slightly towards the 52-week higher level of $40.130. There are expectations that the focus towards maximising cash flow, maintaining the capital discipline and increase value and returns might attract the attention of market players.
On the backdrop of above factors, we maintain our “Hold” rating on the stock at the current market price of A$36.520 per share (down 1.11% on 14 May 2019).
 

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