The big Australian hints at bigger copper 

The big Australian hints at bigger copper 

BHP (ASX:BHP) reported FY24 results that were generally in line with estimates. As one of the most poured-over companies on the Australian Securities Exchange (ASX), the lack of any great surprise is, in itself, no great surprise. Revenue grew three per cent to US$55.7 billion, while underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) grew four per cent to US$29 billion, the latter being slightly above consensus of US$28.7 billion and driven by a one to two per cent increase in copper equivalent production and higher commodity prices, the latter helping to offset a jump in costs. 

Table 1. BHP major assets 

Underlying attributable net profit after tax (NPAT) grew two per cent to US$13.7 billion, which was also marginally above market expectations of US$13.3 billion. Profit from operations were down 24 per cent to US$17.5 billion, while attributable profit was down 39 per cent to $7.9 billion. Free cash flow of US$11.9 billion was 14 per cent better than consensus and was driven by reduced capex and improved working capital. The superior free cash flow saw the company finish FY24 with net debt of US$9.12 billion, which is about 10 per cent higher than consensus.  

By my calculations, BHP’s balance sheet reveals the company generated ‘business’ cash flow of US$10.8 billion. 

The full-year, fully franked dividend was down 14 per cent to US$1.46/share after a final dividend of 74 cents, which was in line with consensus estimates of 75 cents. The lowered dividend may suggest BHP is keeping its cash powder dry (BHP has US$12.5 billion of cash on the balance sheet) for an acquisition after missing out on Anglo American. 

Broadly speaking, the result was in line with expectations. However, given the intensity of the bearish attitude towards the company heading into the results (the share price had declined more than 20 per cent from its December 2023 high), it is unsurprising to see the share move positively. 

The company’s results presentation was heavily weighted toward its copper operations, which reported EBITDA of US$8.6 billion, above consensus estimates thanks in part to better cost control than expected at the South Australian copper operations and better revenue than expected at its Chile operations. Providing further details on growth in its copper revenues, the company noted a maiden resource for Oak Dam in South Australia, the phasing, over ten-years, of its two-stage smelter, and expansion into higher grade deposits. The copper operations produced the highest volume in 15 years, including record production at Spence and Carrapateena. 

The company noted Nickel West production in FY2024 was in line with the prior year. Notably, on 11 July 2024, BHP announced Western Australia Nickel, comprising the Nickel West operations, and temporarily suspending the West Musgrave project from October 2024 due to oversupply in the global nickel market and strong growth of alternative low-cost nickel supply, reflected in forward consensus nickel prices over the remainder of the decade. The company intends to review this decision by February 2027.  

FY25 guidance was provided at BHP’s quarterly update, so there was little new information, although one should keep in mind the presentation’s emphasis on copper operations. 

Zooming out the company believes the developed economy will grow by three per cent this year, and in the future growth is expected to be aided by rate cuts. While China demand is variable, the lower growth is offset by growth in India.  

As always, financial performance will be driven by commodity prices, as will sentiment towards the shares. 

The Montgomery Fund and the Montgomery [Private] Fund owns shares in BHP. This article was prepared 2 September 2024 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade BHP, you should seek financial advice.   

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

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