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Are BHP Billiton Limited shares a buy after its bumper profit growth?

In late morning trade the BHP Billiton Limited (ASX: BHP) share price has extended its strong run and finds itself up 1.5% to $26.09 following the release of its full-year results.

Here’s what you need to know:

  • Revenue up 24% to US$38.3 billion.
  • Reduced unit costs by over 40% and achieved over US$12 billion in productivity gains.
  • Profit after tax up 192% to US$5.9 billion.
  • Final dividend of U.S. 43 cents fully franked, bringing its full-year dividend to U.S. 83 cents.
  • Basic earnings per share of U.S. 110.7 cents.
  • Net debt reduced 37% to US$16.3 billion.
  • Onshore U.S. assets have been deemed non-core and BHP is actively pursuing options to exit these assets.

Whilst the decision to offload its onshore U.S. assets will no doubt take a lot of the headlines, overall I felt the mining giant delivered an exceptionally strong result.

The reduction in its costs was a particular highlight and was a key driver of the impressive 192% increase in profit after tax to US$5.9 billion.

This helped lift the EBITDA margins of its Petroleum and Copper segments from 53% and 32% to 59% and 42.5%, respectively.

Elsewhere, the company’s Iron Ore segment saw a sharp increase in revenue to US$14.6 billion, with EBITDA growing 62% to approximately US$9.1 billion.

Should you invest?

In my opinion BHP is one of the highest quality miners in the world and could be a great investment if commodity prices remain favourable.

While I am bullish on copper prices, I’m reasonably bearish on petroleum and iron ore. As the latter two commodities accounted for approximately 65% of company EBITDA in FY 2017, should prices fall then it could place significant pressure on both its FY 2018 result and its share price.

But if you’re bullish on these two commodities then it could be a great time to invest in BHP or fellow miners Rio Tinto Limited (ASX: RIO) and Santos Ltd (ASX: STO).

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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