BHP's Record-High First Half Still a Touch Soft

Higher operating costs for coal and aluminium, in addition to weak manganese prices have yielded softer than expected 1H results and we are lowering our 2011 earnings forecast

Mark Taylor 23 February, 2011 | 5:57PM
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BHP (BLT) reported a 68% increase in adjusted first-half fiscal 2011 net profit to a record $9.6 billion, marginally below our forecast. It has been 18 months since the miner last reported a similar result. This time iron ore and coking coal shone, offsetting a wallowing aluminium division and weak manganese. Oil and copper were also important. The significance of volumes pales in comparison to price. Key to the result being slightly softer than expected were higher operating costs for coking coal and aluminium--Queensland floods exacerbating the former--and weak manganese prices. Aluminium in particular is sensitive to higher fuel and energy prices and suffered. Better-than-expected performance from iron ore on cost, and copper and oil on price, was a partial offset.

BHP reported a 72% jump in headline profit to $10.5 billion including $314 million in costs associated with the unsuccessful PotashCorp takeover bid, a $1.1 billion gain predominantly due to an increase in the value of future tax depreciation on exchange rate movements and a $138 million gain on release of tax provisions. The company excludes only the PotashCorp costs and $138 million tax provisions from its $10.7 billion underlying earnings figure while we add the $1.1 billion tax gain to our exclusions list--only the PotashCorp costs are real.

BHP declared a $0.46 interim dividend, a 10% increase and just above our $0.45 target. Noteworthy is the expanded $10 billion capital management initiative to be completed by the end of 2011. The company will consider both on- and off-market purchases with a total of around 4% of issued capital at the current share price. And it apparently won't get in the way of $80 billion earmarked for major project development, including iron ore and metallurgical coal, during the next five years.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BHP Group PLC1,867.80 GBX-1.27Rating

About Author

Mark Taylor  is an equity analyst at Morningstar.

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