ASX Reporting season preview: BHP and Rio Tinto

Morgans views on ASX 200 iron ore companies heading into August reporting season.

BHP: Cashflow heavy

Morgans expects another period of heavy cashflow for BHP (ASX: BHP), forecasting second-half free cashflow to be around US$12bn compared to US$10bn in the first-half.

The analysts will be focused on areas including “broad inflation across the Pilbara, diverse headwinds across base metals, mixed volumes in coal and volatile currency swings, we are interested to see how unit costs are performing."

Morgans forecasts BHP to deliver FY22 revenues of US$62.73bn, up 3.1% compared to last year and underlying net profit is expected to be US$20.4bn, up 19.5%.

The broker is Add rated on the stock, with a $48.30 target price.

BHP 12-month price chart

Rio Tinto: Dependencies and uncertainties

Guidance for Rio Tinto’s (ASX: RIO) flagship iron ore division is heavily dependent on the smooth ramp up of the Gudai-Darri Project in Western Australia, said Morgans analyst Adrian Prendergast.

Gudai-Darri hit production status in June 2022 and is considered to be Rio Tinto’s most technologically advanced mine. The project is expected to ramp up production heavily in the second-half and reach full capacity in 2023.

Prendergast is closely tracking the productivity problems across its global business and uncertainty on the outlook of Rio Tinto’s interest in the giant Simandou project in Guinea.

Morgans forecasts Rio Tinto to deliver first-half FY22 revenues of US$29.65bn, down -22.3% compared to the prior period and underlying net profit is projected to come in at US$9.18bn, down -24.6%. 

The broker is Hold rated on the stock, with a $114.00 target price. 

Rio Tinto 12-month price chart