Buy the dip on BHP?

Some amusing analysis here for you with BHP’s new result. It missed consensus profits above $10bn pretty badly:

 

But that’s history. Looking forward is much more concerning. It’s all about iron ore and coking coal, the two major drivers of returns:

Here’s the realised prices:

My outlooks for CY2020 are $50 (FOB) for iron ore and $100 for coking coal. Here is the sensitivity analysis:

That will equal a roughly $7bn smashing to EBITDA and ROCE going straight back to 2016:

The valuation multiple will explode as profits crash. Counter-intuitively, that’s when you buy the BHP drop, not today!

Houses and Holes

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the fouding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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