Macro Intelligence: BHP cuts dividend despite profit beat, Zip and Woodside Energy on watch

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In this week’s edition of IG Macro Intelligence, we delve into the February reporting season, examining BHP's earnings and previewing ZIP and Woodside Energy.

Corporate earnings overview

Of the 82 companies that have reported so far, 30 have beaten market expectations, 31 came in line, and 21 have missed, according to FNArena’s Corporate Results monitor.

BHP's earnings breakdown

BHP disclosed its first-half earnings on February 20, revealing an underlying profit of US$6.6 billion, slightly surpassing expectations due to robust iron ore prices. However, its revenue, which saw a 6% increase to US$27.2 billion, did not meet market expectations, and its profit after tax plummeted by 86% to US$927 million.

Following the announcement, BHP's shares experienced a sell-off, prompted by a 20% reduction in its dividend payment. Shareholders are set to receive a fully franked dividend of US$0.72 per share, or AUD$1.10, a decrease from the previous period.

Analysts' positive outlook on BHP's dividend surprise

Citi responded positively to the dividend announcement, having projected a payout of only US$0.68. “The market should take the modestly higher dividend than expected as a reflection of BHP’s improving confidence regarding outlook on commodity demand/prices," analysts at Citi commented. Despite this, BHP expressed caution, particularly regarding China's economic landscape, noting that the worst of the inflationary impacts appears to be subsiding.

BHP daily chart

When is Zip reporting?

ZIP is set to report first-half numbers on February 27.

Anticipating Zip's 1H financial performance

The Buy-Now Pay-Later firm is expected to report a 22.5% increase in first-half revenue to $430 million, according to Reuters estimates. The company recently informed the ASX group that cash EBITDA is expected to be between $29-33 million. Zip’s earnings have been declining at an average annual rate of -53.5%, underperforming the Consumer Finance sector, according to Simply Wall Street.

A look at Zip's earnings trajectory

Morningstar data shows earnings at Zip have declined by an average of -10.2% over the past three years, worse than the industry average of -7.4%. Analysts are estimating even weaker average annualised growth over FY24 and FY25.

Zip shares have been trending higher recently amid speculation it’s a takeover target. Multiple indicators show a strong bullish trend, with the 5-day moving average of the stock above the 20 and 50-day moving averages. The 200-day moving average is also trending higher.

Analysts' perspectives in the wake of takeover rumours

Takeover talk has analysts scrambling to update their forecasts on Zip, with an average BUY rating according to Reuters data. Yet, the average target price for the stock is at $0.57, suggesting a 33% downside from current levels.

Citi and UBS are neutral on the stock, with Citi highlighting lower than expected net bad debt. Ord Minnett has a BUY on the stock, with a $0.95 target price. Zip is not expected to declare a dividend payment.

Zip revenue expectations

Zip announcements and forecast earnings

Zip daily chart

Zip mean estimate

When is Woodside Energy reporting?

Woodside Energy is expected to announce its FY23 earnings on February 27.

Post-merger plans and financial forecasts

Following the abandonment of a potential $80 billion merger with Santos, the company has forecasted increased production for FY24. However, consensus EPS forecasts have been adjusted downwards by about 10% for the year, with a revenue forecast decrease from US$14.1 billion to US$13.5 billion.

Investor sentiment and market response

Earnings per share are projected to fall by more than 53% to US$1.60, with revenue expected to decrease by 17% to US$13.9 billion. Despite this, WDS has maintained a historical dividend yield of 10.5%.

Investor sentiment has waned, especially after the dropped merger plans with Santos, leading to a bearish trend in its 200-day moving average.

Woodside revenue expectations

Woodside historical dividend data

Woodside daily chart

Woodside mean estimate

Target price predictions and analyst expectations

The median analyst recommendation for WDS is a HOLD, according to Reuters. 2 brokers have a strong Buy, and one has a strong sell.

The average target price is $32.43, suggesting a 6.2% upside.

Citi is among the most bearish, with a SELL recommendation and target price of $27.

Ord Minnett has a BUY call and sees the stock rising to $45.

IT vs. Energy vs. Materials

Over the past six months, the IT sector has outperformed the energy space with a 4% return in growth versus energy’s 11.8% decline. The materials sector has seen a 3.6% increase in the same period.

ASX sector six month time frame