rising inflation and new ESG alignment now make it a good time to buy BHP


Since last appearing in this column, the company has also announced plans to end its dual-listed company structure for efficiency reasons. While the company’s shares would exit the FTSE 100 if a unification of its corporate structure continues, they would continue to trade on the London Stock Exchange.

However, some things about the company haven’t changed since our sales advice. In particular, it still enjoys a very solid financial situation.

In fact, its net debt has fallen from £8.8bn to £3bn in the 2021 financial year. This means it now has a net debt to equity ratio of just 7% , while interest coverage (the ratio of earnings to interest bill) of 20 suggests it has considerable financial leeway should the growth rate of the global economy deteriorate.

In addition, the firm continues to offer a relatively attractive return. Certainly, its future dividends are closely linked to the prices of raw materials, which are always very volatile. However, a 9.3% yield indicates that even if payouts to shareholders were reduced, the stock would still be an attractive income proposition relative to the broader market.

BHP’s valuation is also attractive. The shares are trading on an adjusted price-to-earnings ratio of just 9.6 at a time when it has become harder to unearth companies trading at a discount to their intrinsic value. And, with the global economy expected to grow at an annualized rate of 3.7% over the next five years, according to the IMF, its long-term outlook looks solid.

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