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In the dynamic landscape of financial markets, BHP Group Ltd (ASX: BHP) has recently faced a dip in its share prices. On 20 February 2024, the mining giant's shares dropped by nearly 1% to AU$45.54. This downturn follows the release of BHP's half-year results, which, although reflecting a revenue increase, fell short of market expectations. Let's delve into the details to understand the driving forces behind this market development.
BHP's Half-Year Financial Snapshot
BHP reported a commendable 6% surge in revenue, reaching US$27.2 billion. However, this positive note was overshadowed by a substantial 86% decline in profit after tax, plummeting to US$927 million. The primary contributors to this decline were exceptional items totaling US$5.6 billion. These items were linked to the impairment of Western Australia Nickel and charges related to the Samarco dam failure.
Excluding the exceptional items, BHP's underlying profit remained flat compared to the prior corresponding period, standing at US$6.6 billion. On a per-share basis, this equates to 129.6 US cents.
Despite the stability in underlying earnings, the BHP board responded by implementing a 20% reduction in the fully franked interim dividend, settling at 72 US cents per share or AU$1.10 in local currency.
Market Reaction and Expectation Mismatch
Market analysts, particularly Goldman Sachs, had set expectations for BHP's first-half results. Projections included revenue estimates of US$27.6 billion, indicating a 1.5% shortfall in the actual top-line figure. Earnings per share predictions were even more significant, with the market anticipating US$1.43 per share. This resulted in a notable miss of 9.4% on this metric.
Dividend Payout Ratio Evaluation
While the overall result may not be considered the strongest for BHP, some positive aspects emerge. The dividend payout ratio of 56% exceeded the forecast of analysts at Morgans. The broker had expected a lower ratio of 55%, citing factors such as rising investment and net debt.
Insights and Future Perspectives
In response to the results, BHP's management remains focused on strategic initiatives. The company acknowledges challenges but expresses confidence in addressing them. Despite the first-half performance, management expects the second half to witness substantially higher earnings as initiatives take effect, and the benefits of recent acquisitions accrue.
