BHP Billiton shares to stabilize after mixed Q2 results 📊

The world's largest mining company, BHP Billiton (BHP.UK) reported Q2 results, to which the market reacted with a sell-off in the first reaction, but now the stock is slowly returning to growth. Net profit fell sharply y/y, with weakness in China's economy and industry reflected in lower demand for iron and other raw materials. Investors took a negative view of the estimated rising costs (nearly 20% y/y) of the world's largest copper mine, Escondida - even more so given the nearly 50% drop in raw material profits.

Revenues: $53.82 billion vs. $54.43 billion forecast, down 17% y/y (Bloomberg)

Net income: $12.92 billion vs. $13.82 billion forecasts, down 58% y/y (Bloobmerg) 

Net debt: $11.2 billion vs. $9.32 billion forecasts

Free cash flow (FCF): $77 billion (77% down y/y)

Investment and exploration expenditures: $7.08 billion (16% y/y increase, planned to rise to $10 billion in 2024)

• Iron ore production rose 1% y/y but profit from iron ore fell 23% y/y. Coal profit fell precipitously, by 47% y/y, copper posted a 22% y/y decline, with a record 61% y/y decline in nickel profits. The company pointed to nearly 10% y/y cost inflation but estimates lower, 4% y/y cost growth in the next fiscal year.
• Investors are slowly beginning to see that the record dividends of the past 2 years will become a thing of the past as the economy cools and raw material margins decline. The dividend set by the company was $0.80, compared to $1.75 a year earlier, and came in slightly below forecasts.  
• The company estimates that India and China will benefit and stabilize its business in the long term - the company stressed that demand for raw materials in both countries is still quite high despite the economic slowdown. For the moment, however, labor shortages and inflation are driving higher operating costs.
• BHP stressed that production costs are higher today than they were before the pandemic which is affecting raw material price support in the current business cycle. The company reported strong controls on current debt.

Bulls are trying once again from a relatively low base (orange rectangles) to bounce above the SMA100 and SMA200 averages. Source: xStation5