BHP – Buy

BHP Group is under Algo Engine buy conditions and is a current holding in our ASX 100 model portfolio.

BHP outlined earlier this week its outlook for the Petroleum business, which includes an increase in capital spending and plans to double production by 2025.

FY21 revenue remains flat, EBIT the same as FY20 at $19bn, which supports DPS of $1.55 per share placing the stock on a forward yield of 5%.

The market is negative on the outlook for Iron Ore prices, with extra supply hitting the market in 2021, however, if spot prices stay where they are analysts will have to upgrade the earnings outlook. 10 to 20% upgrade in earnings will support BHP trading back over $40 per share.


BHP – Algo Buy Signal

BHP Group is under Algo Engine buy conditions and is a current holding in our ASX 100 model portfolio.

The company reported Q1 production that was below analyst forecasts. The impact was most significant in copper where production was down 9%. Iron production was down 2% and thermal coal was also lower.

Despite the soft quarter, BHP reiterated its full-year production guidance.

Based on FY20 revenue of $43bn, EBITDA $25bn, net income $11bn, we have BHP trading 15x forward earnings and 4.5% yield.

Accumulate BHP within the $30 – $34.50 price range.




BHP – Valuatiion Review

BHP Group is under Algo Engine buy conditions and is a current holding in our ASX 100 model portfolio.

The company announced its FY19 earnings, which were in line with consensus expectations. Operating costs are slightly elevated but high iron ore prices will offset this in FY20.

FY19 reported EBITDA US$23.2bn and underlying attributable profit of $9.1bn.  The market was disappointed that no buyback was announced but BHP did declare a final div of US$0.78 per share.

Total dividends for the year were US$1.33 per share, based on 74% payout ratio.

FY20 revenue is forecast to be $48bn, EBIT $19bn, net profit $11.5bn, which will place the stock on a 10x PE multiple and a forward yield of 6.5%.

We see value support for BHP & RIO near the current price range.




BHP – Valuation Review

BHP Group is trading near fair value and investors should consider selling $42.18 Euro call options into Sept, to add to the cash flow returns.

The highlight of the June quarter production update was petroleum volumes outpacing estimates. Iron ore and copper were in line, while coal disappointed.

FY20 revenue is forecast to be $46bn and net profit $12bn, supporting a 5.5% yield.

The surging iron ore prices creates the potential for BHP to announce a special dividend when it reports its full year result next month.




BHP – Algo Buy Signal

BHP Group is now under Algo Engine buy conditions following the retracement from $40 in April, back to $36 in today’s session.

Iron Ore prices remain elevated at US$93 per tone and the energy complex  looks well supported from global demand and geopolitical issues with Iran.

Investors seeking income should consider adding a BHP Sept call option and stripping out the dividend, plus the call option premium.

BHP goes ex-div $0.89 on the 6th of September.

To learn more about the derivative overlay on BHP, please call our office on 1300 614 002.


Iron Ore – BHP, RIO & FMG

Spot iron ore prices have rallied in the past days on the news of a second catastrophic tailings dam failure at a Vale-owned mine in Brazil.

Exceptions of reduced supply impacting the market, has driven up short term spot prices. Although, Iron Ores prices have been on a steady climb since the November low.

Long-term Iron Ore price chart.

We remain cautious of a potential pullback in RIO, BHP and FMG following the run up in prices and Algo Engine sell conditions.

Our preference continues to be in the energy names with OSH and WPL our core exposures.


Buy BHP At Current Levels

Our Algo Engine recently  generated a buy signal in BHP  and with the share price retracing back to $32, (following the sell-off in oil), we recommend investors accumulate the stock.

BHP trades on a forward yield of 5.2%, allowing for a 20% lift in FY19 earnings.





BHP’s Rally Won’t Be Derailed

Shares of BHP have slid lower in early trade as the mining giant has suspended all iron ore operations in WA after a runaway train with 268 wagons had to be derailed.

We don’t see this as an impediment to the pace of exports out of Port Hedland or the $14 billion share buy back and special dividend program.

BHP has been on an ALGO buy signal since September 11th at $31.20.

We see good technical support in the $32.85 area and initial resistance just under $35.00.


BHP Firms On Capital Return

BHP announced the return of the full US$10.4 billion proceeds from the sale of the mining giant’s US shale assets.

The funds will be returned to shareholders almost immediately through a combination of an off-market buyback in Nov/Dec 18 (US$5.2 billion) and a special dividend of US$5.2 billion payable in January 2019.

BHP has been under an ALGO buy signal since September 11th at $31.20 and we see the next chart resistance level at $35.40.