Ingham Analytics issues a note on BHP entitled Earnings outlook remains encouraging

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Ingham Analytics issues a note on BHP entitled Earnings outlook remains encouraging

Published Date: 2019-09-16 | Source: INCE|Community | Author: Mark Ingham

Ingham Analytics issues a note on BHP entitled Earnings outlook remains encouraging

Ingham Analytics says that a visit to Port Hedland in the Pilbara region of Western Australia reveals the sheer enormity of iron ore exports from Australia. Port Hedland accounts for almost half of global seaborn exports of iron ore, mostly to China. Iron ore is 98% of the port's tonnage and in August, China accounted for 84% of the total. BHP is a significant player in iron ore and has a large market capitalisation.

We are informed by Ingham Analytics that the Chinese import price of 62% Fe content ore has firmed this week to over $92 per dry metric ton, having eased back to $80 at the end of August. Iron ore prices remain buoyant and further colour is provided to investors on that. However, Ingham Analytics say that whilst their latest earnings estimates are predicated on a lower through-the-cycle assumption, they take the view that iron ore is supportive of earnings for the foreseeable future. Interestingly, firmer gold and silver prices, whilst relatively small in Group earnings, is also a positive.

There is no change to the DCF fair value estimates. Netting out debt and cash, iron ore is 60% of their value, followed by copper at 16%, coal at 14%, petroleum at 8%, with the 2% nickel and other bits. The US dollar fair value is unchanged although the Australian dollar, pound and rand values have shifted slightly due to foreign exchange movements.

Ingham Analytics say they particularly like BHP as South Africa does not feature. BHP has no mining in South Africa, having effectively divested through the unbundling of South32. BHP is a good option for South African investors seeking alternatives in mining without the geographic and political risk of JSE mining stocks that are exposed locally.

Click here to find out more about the Ingham Analytics view on BHP.



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