Earnings review: a week after BHP’s 2019 full-year results

Macquarie Research remains bullish on BHP even as iron ore prices look volatile, with the investment bank putting a 12-month price target of A$44.00 per share on the mining giant.

BHP share price action after earnings

Since BHP Billiton Ltd released good full-year results last week, its share price has come under pressure from investors, dropping a little more than 4% since the FY19 announcement.

Mind you, such a decline seems to have less to do with BHP’s group performance, and more to do with persisting US-China trade tensions and falling iron ore prices.

As we reported previously, even though BHP reported underlying profits that came in below analysts' expectations, the iron ore miner has committed itself to paying out a massive $3.8 billion worth of dividends in 2019 and retains the title of lowest cost iron ore producer in the world.

Positively at least, in the last 24 hours Trump announced that the US would resume ‘serious’ trade talks with China.

Potentially in response, BHP's share price traded positively today – gaining 0.84% – as the ASX 200 followed US markets higher.

Broader issues remain unresolved

Even still, as long as the US-China trade issues remain unresolved, the share prices of iron ore miners such as BHP will likely remain under pressure.

BHP itself flagged such uncertainties around iron ore prices in its FY19 results, noting that the company expected iron ore prices to remain volatile in the next one to three year period.

By comparison, in Rio Tinto Ltd’s half-year results, the iron ore miner flagged the negative impact that a protracted trade war would have on China’s manufacturing sector.

This stands as a key concern given that the vast majority of Australia’s iron ore is exported to China.

Macquarie Research says ‘outperform’

With these concerns in the background of BHP’s 2019 profit results, it's hardly surprising that we have seen its share price decline in the last week (and month, for that matter).

Yet even with this negative share price action, BHP remains well liked by the analysts at Macquarie Research, with the investment bank slapping the iron ore miner with a 12-month price target of A$44.00 following the release of its FY19 results.

Factoring in BHP’s current share price of A$34.98, this price target would imply potential upside of roughly 25%.

Macquarie Research’s bullishness is interesting in the broader context of their research report on the iron ore miner.

Here, Macquarie stressed that BHP’s results revealed weaker than expected earnings, which drove both costs and net debt higher than expected.

Even though Macquarie expects higher costs to continue in the short-term, the investment bank has retained an outperform rating on BHP – with the miner’s medium-cost outlook remaining favourable.

Final thoughts

Recent volatility has depressed BHP’s share price significantly.

Though BHP Billiton Ltd had seen its share price rise over 20% – from January to July – it has since fallen, and currently only trades 3% higher than it did at the start of the year.

Moreover, while Macquarie looks bullish, the average analyst estimate rates BHP a hold, according to the Wall Street Journal, at least.

Click here to read our previous coverage of BHP’s full-year results.


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