BHP (LSE:BHP) is a global resources firm, specialising in the extraction of base and precious metals, as well as oil and gas. Currently trading at 2,673p, the BHP share price is up around 23% in the past year. With commodities at high prices, is now the time to buy shares in this business for my long-term portfolio? Let’s take a closer look.
Oil and gas merger
In May, BHP completed a merger with Woodside Petroleum worth an estimated $41bn. The merged business could soon enter the top ten energy producers globally.
The transaction itself only involves the merging of BHP’s oil and gas segment, with its metal operations staying separate.
While some have speculated that BHP is trying to offload its oil and gas operations, others have pointed to the advantages that the merger will bring.
Woodside Petroleum, for instance, has a varied and wide range of oil and gas exploration and production opportunities.
Furthermore, oil is trading at its highest price since 2013 on account of demand after the pandemic, and supply concerns caused by the war in Ukraine. Gaining exposure to Woodside’s operations could therefore be advantageous for BHP.
Strong financial results
Recent financial results also indicate that BHP is in a healthy position. For the six months to 31 December, the company reported a 50% increase in operational profit to $14.8bn.
In addition, it reported that free cash flow was at $8.5bn. As a potential investor, this is encouraging because this cash could be used to for controlled expansion or paying down debt.
It should be noted, however, that past performance is not necessarily indicative of future performance.
BHP has also recently stated that it is investing a greater amount of capital into its early-stage growth projects.
These include Australian copper mines. Copper is in high demand and this trend may continue in the future, because copper is a central component in electric vehicles (EVs).
However, any pandemic resurgence may grind BHP’s operations to a halt, which would probably be bad news for the share price.
Buying BHP shares also seems like a good idea from the perspective of dividends. Last year, the business paid a record interim dividend of $1.50 per share, from a total dividend pot of $7.6bn. It should be noted, however, that dividend policies can change in the future.
What’s more, the company has enjoyed earnings growth over the past five years. During this time period, earnings-per-share (EPS) rose from ¢126.5 to ¢223.5. By my calculations, this means that BHP has a compound annual EPS growth rate of 12%.
Overall, this firm is flying high on the back of surging commodity prices. The financial results are encouraging, and the merger could be an exciting opportunity to tap in further to higher oil prices. I will be buying shares soon.
