Morning Report Monday 9 November 2015
Most local investors are aware of the extremely tough year BHP has experienced falling approx. 30% compared to the index falling around 6% - see chart 1. Obviously BHP has had the proverbial kitchen sink thrown at it this year with the collapse in both iron ore and crude oil prices combined with a weak showing from copper - see charts 4-6.
The fundamental pressures on BHP are clear, especially with current China concerns, but when everything looks awful bottoms in stocks are often formed.
BHP's profit for 12 months to June 2015 was down 86% to $US1.9bn with part of the fall due to the spinoff of South32. Importantly BHP's margin (approx. 50%) remains the best in the embattled sector. This has enabled BHP to maintain a progressive dividend policy (to date) which, if continued, will have the miner yielding over 7.5% fully franked - a huge assumption this can continue in the current commodity cycle.
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