Stock in Focus: BHP (BHP.ASX)
Mining giant BHP shares were down -0.3%, recovering from larger losses later in the session as its 2023 half year result came in softer than expected. Revenue for the half year came in at US$25.7B and profits after tax came in at US$6.5B- down –16% and 32% from the same corresponding period last year respectively.
The result was driven by weaker iron ore and coal prices causing BHP to cut its interim dividend by -40% from last year to US$0.90. Guidance remained strong has it is near completing it’s OZ minerals acquisition as it looks to increase its exposure to cleaner commodities and offload it coal assets.
We remain HOLD rated on BHP. The stock appears fairly priced in light of China’s reopening. With the global economic slowdown taking longer than expected we anticipate demand to ease and commodity prices to come under further pressure, and could see further dividend cuts over the near to medium-term, as we have just seen, making BHP a less attractive proposition at current valuations. We still choose to HOLD some BHP in our ASX portfolio, but would not be buyers at current levels and choose a more appropriate risk adjusted valuation. We trimmed BHP late last year.
New Zealand Market Movers
The New Zealand Market (NZX50 Index, -0.8%) was down yesterday as many major companies experienced a weak day of trade. A2 Milk extended its losses from its Monday result down another 5.4%. Mercury shares slipped on its mixed result – maintained EBITDAF forecast at $795m. PGG Wrightson shares were down -0.7% on its result as it cut it interim dividend slightly from last year down to 12 cents per share, cautioning investors of further volatility and softening macroeconomic outlook.
Australia Market Movers
The Australian market (ASX200 Index, -0.2%) dipped lower on Tuesday, after the RBA revealed minutes that its 25 bps increase could have been higher. The news sent consumer-facing sectors lower as the RBA looks likely to maintain a hawkish tone for lower.
Because of this Coles traded lower, despite posting a +11.4% increase in profit for the supermarket chain as it benefits from offloading cost inflation onto consumers; the supermarket giant also benefitted from lower implementation costs and lower D&A. Neutral on Coles.
Costa Group shares fell -1.1% on its weak result, as unfortunate weather and lack of access to international markets likes China and Japan hurt earnings the former flagged to the market last year – we remain HOLD rated.
US Market Movers
Finally some rationality in the US market, as the S&P 500 closed -2%. Markets are “coming to Damascus” and realising that rates need to stay higher for longer. PMI data from Europe shows the economy is still in pretty good shape – and growing – which suggests, like the Fed, the ECB will need to do more to tame inflation.
More signs of the continued strength of the consumer with Walmart’s results today – EPS of $1.71 (12.88% beat). We keep reiterating this from the data we see from Mastercard and consumer companies like Starbucks, but the consumer continues to spend. From Walmart’s earnings call earlier today, where management’s guidence was bearish and the company cautioned against growth going forward into ’23. Management said – We’ve not been in a position where we’ve seen the Fed tighten this sharply. We see issues where delinquencies are up in things like auto loans. You’ve got savings rates that are coming down. And there’s a lot of unknowns in the back half of the year.
When the management of one of the world’s biggest consumer-facing companies is telling you that, we think you should listen. Hold-rated on Walmart.
Manchester United fell ~12.96% driven by volume in the S&P – doesn’t change the likely acqusition of the club. At $22.99 we think this is a good time to buy some MANU if you didn’t get a chance the first time arround – added 1% to the US model portfolio; total allocation for MANU is now 4%. If the Glazers were intending to keep the club they would need to put out at 8K to comply with SEC regulations signalling material change; this has not happened. The football club is still on the auction block. Maintain Buy.
What Markets will be watching this week
Monday
A2 Milk Earnings
Freightways Earnings
oOh! Media Earnings
Tuesday
BHP Earnings
Coles Earnings
Costa Group Earnings
Mercury Energy Earnings
PGG Wrightson Earnings
Wednesday
RBNZ OCR decision
Rio Tinto Earnings
WiseTech Global Earnings
EBOS Group Earnings
Spark Earnings
Thursday
Next DC Earnings
Qantas Earnings
TPG Telecom Earnings
Auckland International Airport Earnings
Air NZ Earnings
Heartland Group Earnings
Precinct Properties Earnings
Scales Earnings
Sky TV Earnings
Tourism Holdings Earnings
Friday
Lynas Rare Earths Earnings
Harvey Norman Earnings
Channel Infrastructure Earnings
Delegat Group Earnings
Summerset Group Earnings