At the end of last week, BHP was still trading close to the AUS$53-mark (Thursday's high and close $52.99; Friday's high $52.95 and close $52.81). Then some economic figures came out of China which suggested a substantial slowdown in their economy, COVID-19 spiked in Australia, the Taliban took Kabul, and BHP disclosed that, "Oh, by the way, we almost forgot to tell you but we're considering a potential merger of our petroleum business with Woodside Petroleum Ltd." The end result: BHP closed down at $51.33!
That's a drop in the share price of $1.50 despite also announcing today results for the financial year ended 30 June 2021 which shows an 88% increase in earnings per share, and a fully franked dividend of US$2 per share (∼ AUS$2.70), payable 21 September. For full details, click here.
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Operational excellence: Strong operational performance and free cash flow generation, with a margin of 64%
Strong underlying operational performance, with record volumes achieved at Western Australia Iron Ore (WAIO), Goonyella and Olympic Dam, and Escondida maintained average concentrator throughput at record levels. Profit from operations of US$25.9 billion, up 80%, and Underlying EBITDA of US$37.4 billion at a record margin of 64%. Attributable profit of US$11.3 billion (includes an exceptional loss of US$5.8 billion predominantly related to the impairments of our potash and energy coal assets, and the current year impact of the Samarco dam failure). Underlying attributable profit of US$17.1 billion, up 88% from the prior year. Net operating cash flow of US$27.2 billion, above US$15 billion for the fifth consecutive year, and record free cash flow of US$19.4 billion, reflects higher iron ore and copper prices, and a strong operational performance. |
Oh, and yes, BHP will merge its oil and gas business with Woodside to create the largest energy company listed on the ASX, with a global top-ten position in the LNG industry by production. Woodside will issue new shares to be distributed to BHP shareholders, with the expanded Woodside owned 52 per cent by existing Woodside shareholders and 48 per cent by existing BHP shareholders.
Exciting times are ahead of us. Let's hope it's reflected in a higher share price soon. I still trust Goldman Sachs whose target price is $57.70.
P.S. 6.30 p.m. here, 9.30 a.m. in London. BHP is a dual-listed company, and in early trading in London is up 7% (but that may have something to do with the proposed end to BHP's dual-listing under which BHP Plc shareholders are entitled to receive one Ltd share for each Plc share).
P.P.S. Wednesday morning, and overnight BHP closed 3.4% up in London (2,358 GBP) and 7.9% down in New York (US$69.83). If the 7.9% drop in New York is a response to the merger with Woodside, it seems a little premature as it is still subject to various approvals, including by shareholders. I am confused, but I'm not alone as Goldman Sachs withdrew their BUY rating and came out with a "Not Rated" analysis - click here. Let's see how the market opens up in Sydney this morning.
P.P.P.S. It's 4 p.m. and the Australian market has closed. It's been my most disastrous day in the market EVER: BHP plunged a stomach-churning 7.07% to $47.70 which is close to NAV. Where to from here?
