The BHP Billiton Limited (ASX: BHP) share price could enjoy a strong day on the ASX tomorrow after the miner revealed a bumper result thanks to the recent rebound in commodity prices. Below is a summary of the result for the six-month period ending December 31 2016.
- Net profit after tax of US$3.2b, up 157%
- Revenue of US$18.8b, up 20%
- Underlying EBITDA (operating income) of US$9.9b
- Underlying EBITDA margin of 54%
- Capital and exploration expenditure slashed by 38% to US$2.7b
- Free cash flow of US$5.8b
- Net debt cut to US$20.1b from US$26.1b
- Interim dividend of US 40 cents, versus US 16 cents in comparable period
- Underlying earnings per share of US 61 cents, versus US 7.7 cents in comparable period
This time last year BHP shares traded for just $17 as the world panicked that a slowdown in the world's second-largest economy of China could permanently torpedo commodity prices. Oil, iron ore, copper and coal were all at multi-year lows, however, a swift turnaround has left investors brave enough to jump into BHP stock over the first half of calendar year 2016 laughing all the way to the bank.
Still I expect commodity prices may struggle to maintain their upward trajectory as China transitions away from its once-in-history construction super-cycle. China is also moving away from an economic model of centralised investment in another sign that demand for commodities like iron ore and oil may slide over time as more supply comes back online.
Still commodity bulls will point to the expected great reflation under President Trump leading to higher commodity prices as asset prices rise and fiscal policy supports a commodity price boom.
Given the unpredictability of commodity prices BHP shares might provide investors some ok returns over the short term, but I'm not a buyer of its shares given that over the past 10 years the share price is down 8%. This despite the ballooning amount of equity on issue and expanded debt profile, which means BHP offers just about everything I look to avoid in an investment.
