Overnight Crash in Oil Prices Dented Few  Blue-Chip Stocks: London Stock Exchange Group PLC and BHP Group PLC

Britain’s FTSE 100 stock index and European stocks closed slightly higher, post witnessing a volatile session on Monday (20^th April 2020), primarily driven by the resilient performance of drug makers and consumer staple giants. However, the collapse in oil prices due to oversupply concerns kept a lid over gains. Today, we will discuss two blue-chip stocks, and London Stock Exchange Group PLC (LSE) and BHP Group PLC (BHP). The stock price of LSE surged today (21^st April 2020, Tuesday) by 0.66 per cent whereas BHP plunged 3.65 per cent (at the time of writing, GMT 9:20 AM), following the release of their trading updates. Let’s have a glance over their respective business model, financial position and outlook to understand the magnitude of their latest trading update and oil price collapse.

London Stock Exchange Group PLC (LON:LSE)

London Stock Exchange is a London, United Kingdom-based global financial markets infrastructure group. It offers a wide range of bond, international equity and derivatives market. It has major operations in North America, Sri Lanka, France and Italy. The group has a workforce of over 4,700 people.

(Source: Annual Report)

A Glance of LSE’s Core Business Divisions

The group has the following business division which together reported a growth in total income by 8% in FY2019 revenue to GBP 2,314 million (FY2018: GBP 2,135 million), despite political and macroeconomic uncertainties during the financial years 2019.

• Information Services: Provides a range of information and data products.
• Post Trade Services LCH: Provides clearing services.
• Post Trade Services CC&G and Monte Titoli: Provides settlement, custody and clearing services for various assets class.
• Capital Markets: Provides access to capital and an electronic platform for secondary market trading.
• Technology Services: Deals in capital markets software and network connections.

(Source: Annual Report)

Key Developments of 2020

• 6^th April 2020: LSE Group has announced the implementation of LCH’s EquityClear service (new clearing platform), which will bring enhanced risk management and operational efficiency due to real-time processing.
• 16^th March 2020: Regarding the acquisition of Refinitiv for a total transaction value of USD 27 billion, the group announced that there are no unresolved national security concerns, stated by the Committee on Foreign Investment in the United States.
• 16^th December 2019: LSE had appointed David Shalders as Chief Operating Officer and Chief Information Officer, which came in effect from 1^st January 2020.

Q1 Trading Update for the Three Months Ended 31^st March 2020 – Reflecting Decent Performance Despite Unprecedented Market Backdrop

• Led by an improved equity trading in Capital Markets and higher clearing activity across OTC and listed products leading to higher NTI (net trading income) in Post Trade, the total income increased by 13% to £615 million in Q1 FY20 as compared with the corresponding period of the last year.
• The total revenue for Q1 FY20 increased by 10% to £535 million against the same period last year (Q1 FY19: £486 million), driven by an increase in Information Services (up 7%), Post Trade (up 12%), Capital Markets (up 15%), and Technology Services (unchanged at £14 million).
• During this unprecedented crisis created by COVID-19, the company has prioritized operational resilience across the Group’s systemically important market infrastructure platforms and services. All employees of the Group are working on a remote basis.
• For Refinitiv transaction, the company’s integration planning is progressing well. CFIUS approval received and anti-trust filings prepared in several other jurisdictions. The business stays committed to the completion of the transaction in the second half of 2020.

Share Price Performance

Daily Chart as of April 21st, 2020, before the market close (Source: Thomson Reuters)

LSE’s shares, at the time of writing before the market close (at 9:30 AM GMT) on 21st April 2020, were trading at GBX 7,704. Stock's 52 weeks High is GBX 8,628.00 and Low is GBX 4,929.00.

Outlook – Reflecting Decent Growth in the Upcoming Period

Investment in future business helps in achieving further sales growth and operational efficiencies. The company has shown good financial performance in the current quarter. The company is undergoing acquisitions for rapid transformation in line with a balanced approach. On 31 March 2020, the Group had committed over £600 million of facility headroom available for general corporate purposes. The company’s growth trajectory looks favorable as the current trading levels indicate the stock movement towards 52-week high. From the perspective of a long-term view, the Group expects to drive growth in each of its business lines stay intact.

BHP Group PLC (LON:BHP)

BHP Group PLC is a resources company, which is engaged in the extraction and processing of mineral, oil and gas. It is operating with an employee base of around 72,000 (including contractors) serving in over 90 locations globally, with major operations in the Americas and Australia. The group has two parent companies, BHP Group Limited and BHP Group PLC as it operates under Dual Listing Structure. The company is also engaged in the production of multiple commodities, which includes uranium, metallurgical coal, iron ore and copper.

(Source: Annual Report)

Brief Overview of Business Segments & Divisions

• BHP’s operations are divided into four reportable segments, namely:
  • Coal: The Coal business is involved in the mining of thermal (energy) coal and metallurgical coal. The Group has produced 70 million tonnes of coal in FY2019.
  • Iron Ore: The Iron Ore business is involved in the iron ore mining process. The Group has produced 238 million tonnes of iron ore in FY 2019.
  • Copper: The Copper business is involved in the mining of gold, uranium, molybdenum, copper, zinc, silver and lead. The Group has produced 1,689 kilotonnes of copper in FY 2019.
  • Petroleum: Petroleum comprises exploration, production and development activities pertinent to oil and gas operations. The group has produced 121 MMboe of Petroleum in FY 2019.
• The company’s operating model is divided into the following three businesses:
  • Petroleum: The Petroleum operating assets are in Macedon, Pyrenees, Angostura and Shenzi.
  • Minerals Americas: The Minerals Americas operating assets are in Escondida, Pampa Norte and Jansen.
  • Minerals Australia: The Minerals Australia operating assets are in Western Australia Iron Ore, New South Wales Energy Coal, Queensland Coal (BMA and BMC), Nickel West and Olympic Dam.

(Source: Annual Report)

Significant Updated of Recent Past

• 18^th April 2020: Considering the health emergency caused by Covid-19, the group has decided to reduce its workers and contractors. Also, the group has established a fund of USD 25 million to assist contractor companies in Chile.
• 20th March 2020: BHP intended to hire 1,500 additional people on a temporary basis to support its workforce for operations across Australia.
• 4th December 2019: BHP announced the appointment of Gary Goldberg, as an Independent Non-executive Director to the board, effected from 1st February 2020.
• 14th November 2019: Mike Henry was appointed as Chief Executive Officer and Executive Director, which came into effect from 1st January 2020.

Operational Update for the Nine Months Ended 31^st March 2020 – Reflecting COVID-19 Impact on the Performance

• In the current period, the financial position is decent. This robust position, underpinned with the low-cost operations, indicates that the group is resilient and projected to generate substantial cash flow through the cycle.
• Across the portfolio, the company has delivered decent underlying operational performance, which has offset the impacts of planned maintenance, wet weather in Australia, and natural field decline. Over the nine months ended March 2020, the group copper equivalent production was broadly unchanged, with volumes for the full year 2020 now likely to be in line with the previous year.
• Western Australia Iron Ore (WAIO) and Caval Ridge attained record on March YTD20 (year-to-date) production. Escondida production was also improved in the current period. This is supported by record concentrator throughput, and record ore was stacked at Spence.
• In Mar YTD2o, the total petroleum production reduced by 10% to 82 MMboe as compared to Mar YTD19, while the petroleum production decreased by 11% in the current quarter against the previous quarter (Dec Q19). This decrease was driven by lower seasonal gas sale, an increased downtime at the Bass Strait, and planned maintenance at Atlantis.
• As per the Mar YTD20 performance, the total copper production surged by 5% to 1,310 kt; the total iron ore production rose by 3% to 181 Mt (205 Mt on a 100 per cent basis); Metallurgical coal production reduced by 3% to 30 Mt (52 Mt on a 100 per cent basis); Energy coal production declined by 13% to 18 Mt; and Nickel West production tumbled 4% to 56 kt, driven by the major quadrennial maintenance shutdowns at the Kalgoorlie smelter and the Kwinana refinery, and also planned routine maintenance at the concentrators, in the December 2019 quarter.

Share Price Performance

Daily Chart as of April 21st, 2020, before the market close (Source: Thomson Reuters)

BHP’s shares, at the time of writing before the market close (at 9:25 AM GMT) on 21st April 2020, were trading at GBX 1,260.80. Stock's 52 weeks High is GBX 2,078.50 and Low is GBX 939.80.

Short term Business, Economic and Commodities Outlook

For the 2020 financial year, the production guidance stays unchanged for metallurgical coal, petroleum, and iron ore. In the operating assets, the guidance for Copper is broadly unchanged. Led by the temporary suspension of operations created by COVID-19, the Antamina guidance is under review. Guidance for Energy coal production is under review. For the 2021 financial year, the company is also reviewing the guidance, and it will be around US$8 billion, which reflects lower than the current guidance.

The deepening and intensifying impact of Covid-19 coupled with Price-war initiated between Russia and Saudi Arabia makes the short-term outlook quite uncertain. Many major economies, including Europe, the United States (US) and India, will contract heavily in the upcoming quarter (June 2020). In contrast, China has moved to early indications of economic recovery from intensive viral suppression. As per the commodities market, the company is cautious about the outlook for its key commodities in the short term but expects positive demand in the long-term.