Valuation of BHP Group

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Name
Introduction to financial instrument and markets
Date

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Part A: BHP Group valuation
Industry and company analysis for BHP Group Ltd.
BHP Group Ltd is a resources company operating globally. The company operates in the
mining industry with most of its businesses in Australia and the United States. BHP Group
Ltd operates four business segments in the mining industry namely Petroleum, Coal, Iron Ore
and Copper. The Petroleum segment explores, develops and produce oil and gas. The Copper
segment mine minerals such as copper, gold, silver, uranium, lead, molybdenum and zinc.
The Iron Ore segment mines Iron ore. The coal segment focuses on mining thermal coal and
metallurgical coal. BHP Group Ltd uses its global logistics distribution chain of pipeline and
freight transportation to reach the global market.1
The Mining and Energy industry is highly influenced by different factors which affect share
prices and profitability level of different players in the market. Price fluctuations and
economic depressions affect BHP Group Ltd as well. The main factor that affects the share
prices for companies that operate in the resources industry is investors marketing, operational
efficiency and market rates. First, Current market price impacts share prices for mining
companies. The production cost for established mining companies tends to be fixed and
cannot be influenced easily by changes in the market. Therefore, an increase in the market
price directly increases the net profit. Studies have shown that a 20% increase in the market
price of gold translates to a 40% share price for a mining company.2
Second, operational efficiency influence profitability and stock price. It takes a mining
company between five and ten years to establish a process which requires substantial capital
expenditure. Mining companies shut down without effective cost management plan in place.
On the other hand, efficient production contributes to increased profitability and ultimately
the share price increase as well. Third, the ability to apply marketing strategies helps mining
companies to attract new investors. A high number of investors leads to adequate financing of
a company which in return increases profitability and share price.3
BHP Group Ltd.’s share price has increased by 22% over the last year leading to a payment
of $3.1 dividend per share. The increase of share price has been contributed by a good
1 P. Andrew, (2017). Financial Ratio Analysis: The Guide for Investors, Managers, and Small Business.
London: Independently Published.
2 A. Damodaran, (2002). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset.
New York: John Wiley & Sons.
3 C. H. Browne, (2016). The Little Book of Value Investing (Vol. 5). New York: John Wiley & Sons.

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reputation in the market, an increase in the amount of Iron Ore, and the ease to attract
investors. The company is also a company leader in the resources industry.4
The current price of ordinary common shares of BHP Group Ltd (ASX: BHP)
a) Current share price for BHP Group common stock
BHP Group is a listed company which trades in the Australian stock market under the ASE
name BHP: AU. According to the Bloomberg financial analysts, the common stock of BHP
Group traded at $ 38. 49 on 29th March 2019. The total common stock trading in the market
on a particular day were 13,905,930. The trend of the company’s common stock price during
March was as shown below.
Source: Bloomberg Financial Analyst
The common stock traded at its lowest on March 16th 2019 at $36.48. On the other hand, the
stock price was highest on March 31st 2019 at 38.49. Generally, the stocks traded at an
increasing trend during the period. Based on stock performance in the market, it is projected
that the share price would keep on increasing in the future.5
4J. Maverick, (2015, Feb 26). What main factors affect share prices in the metals and mining sector? .
Retrieved from Investopedia:
5 C. Biscotti, (2019, May 10). Returns, Ratios and Quant Signal Review For BHP Group (ASX:BHP), Etsy, Inc.
(NasdaqGS:ETSY). Retrieved from Glenwood Guardian: https://glenwoodguardian.com/returns-ratios-and-
quant-signal-review-for-bhp-group-asxbhp-etsy-inc-nasdaqgsetsy/87652/

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b) Trend of the share price over the past 3 years
Day
Stock Price
($)
Common Stock
traded
01/01/2016 17.86 21,770,345
01/06/2016 18.53 46,592,478
01/01/2017 25.5 23,030,184
01/06/2017 24.07 38,474,775
01/01/2018 30.58 27,341,046
01/06/2018 33.08 43,449,413
01/01/2019 33.38 36,879,829
The information can be presented graphically as shown below
Source: Bloomberg Financial Analyst
The common stock traded at its lowest on January 1, 2019, at $17.86. On the other hand, the
stock price was highest on January 1, 2019, at $33.38. Generally, the stocks traded at an
increasing trend during the period. Based on stock performance in the market, it is projected
that the share price would keep on increasing in the future.6
c) Comparative analysis of BHP Group’s share price and its sector
6 P.C. Stimes, (2011). Equity Valuation, Risk, and Investment: A Practitioner's Roadmap. New York: John
Wiley & Sons.