In this series of company deep dives, we’ll analyse Australia’s most prominent and impressive companies - with the aim of unpacking what makes them great. These deep dives will ultimately help investors make more informed trading decisions as well as get a better understanding of the key drivers of share price performance behind some of the ASX’s most important companies.
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BHP share price outlook and deep dive
BHP Group hasn’t become the largest publicly traded company in Australia by chance. Though undeniably a benefactor of Australia’s rich natural resources and more recently a dramatic run up in commodity prices, BHP has shown a history of strong operational performance and managerial excellence.
Here’s 10 key data points that help to explain the company’s success since first listing on the ASX in 1961:
Revenue
BHP Group has seen its top line revenue steadily rise over the last 5 years, as commodity prices – particularly iron ore – have traded up to multi-year highs. Illustrating this point, from 2018 to 2022 BHP’s revenue has increased by a little over US$21 billion – a dramatic rise fuelled primarily by China’s insatiable demand for iron ore.
Investors should realise that BHP’s growth is cyclically tied to the prices of key commodities like iron ore and copper. And while iron ore has remained elevated in recent years – primarily due to supply constraint issues and ravenous demand from China – this is not a fixed feature of the market.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Revenue (US$ Billions) | 43.63 | 44.28 | 42.93 | 60.81 | 65.09 |
| % Change | – | 1.47% | -3.14% | 29.40% | 6.58% |
Source: BHP
Iron ore price
Looking at the iron ore price in more detail, we see that the commodity peaked at a high of US$161.71 per tonne (as an average) in 2021, before slumping to an average of US$121.3 per tonne in 2022.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Iron ore price (US$) | 69.75 | 93.85 | 108.92 | 161.71 | 121.3 |
| % Change | – | 25.68% | 13.84% | 32.64% | -33.31% |
Source: Statista, average iron ore price data.
Looking forward, Fitch expects the price of iron ore to come down progressively in the next few years, with iron ore expected to average US$80 per tonne in 2025.
| Year | 2023 | 2024 | 2025 |
| Iron ore Price forecast (Average) | US$100 | US$90 | US$80 |
Source: Fitch
Revenue Mix
As is the recurring theme of the last few years, BHP’s iron ore division has been responsible for much of the miner’s revenue growth. The iron ore business alone generated more total revenue than BHP’s copper, coal, nickel and potash segments, combined in 2022.
This matters because BHP – while not a pure play iron ore miner like FMG – has its operational performance significantly exposed to the price of iron ore, meaning the performance of this commodity can significantly impact the business.
With Fitch forecasting lower iron ore prices into 2025, investors should consider what BHP’s business would look like in a world where iron ore prices are lower than they are today.
BHP’s product mix should nonetheless be considered a strength, with operations spanning five key areas making it more resilient to changes in commodity prices, when compared to pure play ASX-listed resources companies.
| Resource | Iron Ore | Copper | Coal | Nickel | Potash |
| Production 2022 | 253.2 Mt | 1,574 Kt | 42.8 Mt | 76.8 Kt | – |
| Revenue (US$ billions) | 30.8 | 16.8 | 15.5 | 1.9 | – |
| Underlying EBITDA (US$ billions) | 21.7 | 8.6 | 9.5 | 0.42 | – |
Source: BHP; Mt = million tonnes, Kt = kilo tonnes
Iron ore earnings contribution
Further highlighting BHP’s leverage to the price of iron ore, the resources giant has seen its reliance on its iron ore division increase significantly over the last five years, with the percentage of group EBITDA derived from the iron ore business increasing from 39% in 2018 to a peak of 70% in 2021.
This figure came down significantly in 2022 – as iron ore prices retreated.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Group EBITDA % | 39% | 48% | 64% | 70% | 53% |
Source: BHP
Iron ore EBITDA margins
BHP’s iron ore EBITDA margins have continued to creep up over the last 5-years, remaining firmly above the 5-year average, even as total earnings contribution – expressed as a percentage – fell in 2022.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| EBITDA Margins % | 61% | 65% | 64% | 77% | 71% |
Source: BHP
Profit
While BHP has decisively benefitted from the run up in commodity prices in recent years, management has expertly steered the business during this fortuitous period, keeping costs stable and progressively growing the company’s earnings.
There is a famous quip from Mark Zuckerberg that ‘Twitter is such a mess – it’s as if they drove a clown car into a gold mine and fell in.’
The theme of luck was indeed front and centre in our deep dive on Fortescue Metals Group, another high profile resources company listed on the ASX. The point on luck is similar to that of BHP.
While resources companies might on average require more luck than say a consumer software business, it is ultimately management’s responsibility to turn such luck into real world results.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Earnings (US$ Billions) | 16.19 | 16.61 | 14.84 | 25.53 | 34.27 |
| % Change | – | 2.53% | -11.93% | 41.87% | 25.50% |
Source: BHP
Iron ore production
Beyond profitability, BHP has expertly managed to maintain and progressively increase its iron ore production in the last five years.
This comes even as unlucky weather events – including 2019’s cyclone Veronica, and unpredictable labour shortage issues and other covid pandemic disruptions emerged – both facts which speak to the quality of BHP’s management team.
In 2023 BHP said they expected to produce between 249 million to 260 million tonnes of iron ore, implying a change of -1.53% and +2.76% year on year.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Iron ore production (million tonnes) | 238 | 237 | 248 | 254 | 253 |
| % Change | – | -0.42% | 4.44% | 2.36% | -0.40% |
Source: BHP
Dividends
BHP has translated its natural resources into tangible products, profits, and maybe most importantly for the miner’s shareholders (and its share price) – dividends.
BHP’s dramatic earnings run up in the last 5-years has seen an equally dramatic rise in dividends paid out to shareholders, with the miner growing its annual dividend more 250% from 2018 to 2022.
Expressed differently, over the last 5-years BHP has averaged an above market dividend yield of 6.46%, making it one of the highest yielding large caps on the ASX as of 20 March 2023.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Dividends Per Share (US$) | 0.98 | 2.20 | 1.43 | 1.56 | 3.50 |
Source: BHP
Market capitalisation
Off the back of all this, BHP Group has grown to be the largest listed company on the Australian stock exchange – touting a market capitalisation of A$220 billion as of 20 March 2023.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Market Capitalisation (US$ billions) | 121.93 | 137.78 | 165.00 | 152.29 | 157.01 |
| % Change | – | 11.50% | 16.50% | -8.35% | 3.01% |
Source: CompaniesMarketCap
Share price outlook 2023
Following massive dividend payouts and a firm run up in BHP’s share price, analysts have cooled on the miner, with the consensus rating standing at a Hold as of 20 March 2023.
Mind you, while the consensus is hold, 40% of the analysts covering the stock – still rate it a Buy, following the miner’s recent interim earnings results released in February.
| Ticker | Consensus Rating | Buy | Hold | Sell | Price Target Average | Implied Upside |
| BHP | Hold | 10 | 12 | 3 | A$47.37 | -1.42% |
Source: Market Index; implied upside as of 20 March 2023.
How to buy and invest in BHP
With Syfe you can invest in 2,200+ Aussie stocks & ETFs – including BHP – from brokerage of just A$4.99 per trade
To invest in BHP with Syfe, follow these 5 simple steps:
- Download our app & create a Syfe account or login into the Syfe app on your mobile device
- Search for ‘BHP’ or ‘BHP Group’ in the Syfe app
- Tap ‘Buy’ on the app screen
- Choose between ‘buy in shares’ or ‘limit order’ then just slide to buy
- Confirm your order and monitor your ASX investment
This article/webinar is brought to you by Syfe Australia Pty Ltd, AFS representative number 001295306 representing Sanlam Private Wealth Pty Ltd (AFSL 337927). Any information we provide here is general advice and current at the time written. It does not take into account your objectives, financial situations or needs. You should therefore consider the appropriateness of the advice in light of your own objectives, financial situation or needs before acting on the advice, and/or speak to your financial or tax adviser for personal advice. Any reference to an investment’s past or potential performance is not an indication of any specific outcome or profit. We do not intend for any statement made here to relate to the acquisition or disposal of any shares in the companies or other financial products named here, and are not providing personalised advice or recommendations
