What is the outlook for the BHP Group Ltd (ASX: BHP) share price after reporting its FY21 result? That is a question a lot of investors are asking themselves considering the major resource company is making big moves.
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What did BHP report in the FY21 result?
BHP reported that its attributable profit grew 42% to US$11.3 billion. That number included an exceptional loss of US$5.8 billion predominately related to impairments of potash and energy coal assets, and the current year impact on the Samarco dam failure.
Underlying attributable profit, which excludes those big impairments, increased 88% to US$17.08 billion.
Profit from operations went up 80% to US$25.9 billion and net operating cash flow grew by 73% to US$27.2 billion.
Net debt decreased by 66% to US$4.1 billion.
BHP's board decided to declare a full year dividend of US$3.01 per share.
However, the BHP share price has fallen 7% at the time of writing.
What else happened?
BHP made some other announcements as well.
It was confirmed that Woodside Petroleum Limited (ASX: WPL) will merge with BHP's oil business to create a global top-10 energy company by production.
Woodside will issue new shares to be distributed to BHP shareholders. The expanded Woodside will be owned 52% by existing Woodside shareholders and 48% by existing BHP shareholders.
This bigger Woodside business is expected to benefit in a number of ways including greater scale (and related operating leverage), high margin operating cashflows, a strong growth profile, more than US$400 million of synergies and greater financial resilience.
BHP also announced that it had approved US$5.7 billion of capital expenditure for the Jansen Stage 1 potash project in the province of Saskatchewan, Canada.
The resources giant said that this potash investment aligned with the company's strategy of growing its exposure to future facing commodities in world class assets that are large, low cost and expandable. Jansen Stage 1 is expected to produce approximately 4.35 million tonnes of potash per annum. First ore is targeted for the 2027 calendar year. Peak demand for potash is not expected for at least another 100 years.
BHP is also ending its dual structure in the UK with the costs of enacting that decision reducing from around US$1.2 billion to between US$400 million to US$500 million.
Broker opinion on the BHP share price
Brokers largely said that the profit was what analysts were expecting, but the headlines were captured by the Woodside deal and its other announcements. But brokers such as Macquarie Group Ltd (ASX: MQG) and UBS said the dividend was bigger than expected.
But, the brokers have different opinions regarding whether BHP is worth buying at this price.
Macquarie says yes, with a price target of $58. It reckons BHP is valued at 11x FY22's estimated earnings with a forward grossed-up dividend yield of 10.6%.
However, UBS says BHP is a hold with a price target of $42, even though it reckons the BHP share price is valued at under 10x FY22's estimated earnings. UBS is expecting a higher FY22 profit than Macquarie.
BHP's own outlook
The resources giant is still positive on the long-term global economic growth and commodity demand. Population growth, the infrastructure of decarbonisation and rising living standards are all expected to drive demand for energy, metals and fertilisers for decades to come.
But BHP said the short-term is uncertain.
BHP said Chinese steel production is expected to increase by around 5% in the 2021 calendar year. It's expecting a continuation of strong end-use demand conditions in China an ongoing recovery in the rest of the world over FY22. However, in the medium-term, Chinese demand for iron ore is expected to be lower as crude steel production levels out and the scrap to steel ratio rises. Iron ore quality differentiation is expected to remain a factor.
Time will tell how the BHP share price is impacted by China's changing demand for iron ore.
For copper, prices have been strong, and in the longer-term, both demand and supply factors indicate copper is an "attractive avenue for future growth".
