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Date : 07/08/2023

Why BHP Group (ASX: BHP) is the Dominant Resource Player on the ASX?

In 2023, BHP Group (ASX: BHP) sits at the pinnacle of the Australian Securities Exchange (ASX), commanding a whopping market capitalization of $235 billion. This staggering figure leaves its nearest competitor, Rio Tinto (ASX: RIO), lagging behind with a market cap hovering around $170 billion.

BHP Group is a multinational mining powerhouse with an expansive reach across various continents, including Australia, South America, and Papua New Guinea. Over the past five years, it has exhibited an impressive growth trajectory, clocking in a 40% increase – an accomplishment roughly twice that of the ASX 200.

BHP: FY22 Highlights (In AUD)

BHP shares are trading at $45.85 and surged 18.75% in the past year. If we look at the graph, the stock surged around 37.36% in the past five years. The current market cap of the company is approximately 232.27B AUD.

ASX BHP Group Shares News

  1. Revenue: 65.41B increased by 14.25% YoY
  2. Operating Expense: 23.13B increased 12.58% YoY
  3. NPAT: 30.90B increased 173.35% YoY
  4. EBITDA: 37.65B increased 13.18% YoY
  5. EPS: 4.71
  6. Cash and Cash Equivalents: 17.54B increased by 14.87% YoY

The Reason for its Dominance

The question of whether BHP warrants its top position can be addressed by examining two critical aspects:

The Strength of its Diversified Portfolio: BHP’s extensive and diversified portfolio of commodities, including iron ore, metallurgical coal, copper, and oil, coupled with operations across various high-demand markets, forms a robust foundation for its business model. This diversity buffers BHP from individual commodity price fluctuations and limits the short-term upsides from these commodities.

In contrast, mining giants like Fortescue (ASX: FMG) and Rio Tinto (ASX: RIO) heavily depend on one or two key commodities for their revenue, leaving their share prices at the mercy of market volatility.

Furthermore, the long-term demand dynamics for BHP’s commodities, especially copper, remain strong, reducing its vulnerability to share price damage from individual commodity price changes.

Consistent Performance and Significant Revenue: BHP’s steady growth, its capability to yield substantial revenue, and its history of significant dividends all contribute to its attractiveness to investors, thereby driving its stock value. For instance, in the fiscal year 2022, BHP generated a commendable yield with a production output of 253Mt of iron ore, 1.5Mt of copper, and 42.8Mt of coal.

BHP’s revenue clocked in at US$65.1 billion, with a profit of $22.4 billion from continuing operations and dividends of US$3.50 per share, a remarkable achievement relative to its share price.

Current Investment Considerations

BHP might be a better investment currently. Future predictions indicate a sizeable decline in revenue and earnings, with revenue expected to decrease by 17% to $54.2 billion and dividends per share slated to dip from $4.71 to $2.70.

This downturn is primarily due to commodity prices (specifically coal and iron ore) stabilizing after their artificial elevation due to the Russia-Ukraine conflict and the pandemic.

Investors looking for significant gains might find more attractive opportunities among project developers in the lithium and uranium sectors. However, for investors with an income-centric approach, BHP’s consistent history of substantial dividend payouts might still make it a viable option, irrespective of the share price’s trajectory.

Conclusion

BHP Group’s dominance in the ASX is well-deserved, given its diversified portfolio and consistent financial performance. However, investors should proceed cautiously due to predicted revenue and dividends declines. Alternative investment opportunities lie in sectors like lithium and uranium. BHP’s proven history of substantial dividends remains attractive for income-focused investors. As always, investment decisions should align with individual financial goals, risk tolerance, and timelines.

 

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