Portfolio Change - Increase BHP
Blended Australian Equities Portfolio
We have added to the BHP holding in the portfolios, which is a substantial position yet slightly underweight relative to the market. It has been a watershed year for the company, with the unification of the Australian and UK listed stock in January, followed by completion of the demerger and sale of the BHP Petroleum business to Woodside for scrip consideration in June.
Meanwhile its two largest commodity price exposures, iron ore and copper are trading lower by 17% and 24% respectively on a year-to-date basis. Market consensus earnings per share forecasts for FY23 have been downgraded by approximately 13% since the end of July, however forecasts for BHP’s FY23 underlying net profit and free cash flow are now 20% and 42% below that implied by current spot commodity prices and exchange rates, as commodities are trading above market expectations for the balance of FY23.
This leaves BHP trading on forecast price earnings multiple of 8.6 times and dividend yield of 8.5%, while if economic and commodity price outcomes in the second half are not as bad as currently forecast, BHP could substantially exceed market expectations.