European and US stocks rally, iron ore jumps, BHP reports, ASX closes above 5,000, futures up 39 points
Despite a strong rally yesterday and a decent lead this morning, a contrast in BHP sentiment this morning makes gains this morning a little harder to predict. In after hours trade on the New York stock exchange, BHP's ADR has lost 3.08% of its 5.46% gain during the day session there, leaving it up a net 2.38%. BHP's London listing, which closed trading prior to the release of its results, received a similar response to that of the ASX listing yesterday, with investors rushing to buy in before the announcement of the result – it was up 8.55% in London. Now we need to try and patch together those trading responses with the results announcement this morning, which includes a US$0.16 (~A$0.2213) fully franked dividend, which will be its lowest interim dividend since March 2005, and the first cut since 1988.
So will it be a case of 'careful what you wish for' this morning, or will investors relish the fact that the BHP executives have finally cut its dividend? BHP will now move to a dividend with a floor being 50% payout of underlying profit plus any extra that the management want to throw in at their discretion, and BHP's highlight of its result (a loss of US$5.7 billion) will definitely be the ability of its balance sheet to withstand it. The board added an additional US$0.12 to this interim dividend to soften the blow, essentially manufacturing a figure of US$0.16c in order to placate the market.
The results presentation reads quite defensively, with a lot of 'enhanced optionality,' which I think in this case means balance-sheet strengthening in order to withstand market conditions that nobody can accurately forecast, and ramp capex up again when conditions allow it. The results are front-loaded with detail of BHP's financial handling of the Samaraco dam disaster, which, including the full write down of the dam's equity value, comes to a post-tax charge of US$858 million, or A$1.187 billion, in the accounts. Anyway I won't write anymore about BHP until the market hands down its judgement at 10am, after which I'll hand over to Shannon Rivkin to provide some coverage.
BHP aside, the ASX 200 (second chart, blue line) had a great day yesterday and closed above 5,000 for the first time since 1 February. European and US markets put in strong 1.5%+ rallies and the AUDUSD (second chart, pink line) is trading well above US$0.72 in a move that puts it at a fresh year-to-date high. And following all of the hype about the dim prospects for the UK on an exit from the EU, the market there rallied 1.5%.
Iron ore is up 6.18% to US$51.52, and copper is up 1.85% – coming in alongside 5% gains in oil, materials names are going to have a great day today, irrespective of BHP's financial performance for the second half of 2015.
Source: Rivkin, Saxo Bank
This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3600.