Our Order Pad | Silex (SLX:ASX) & BHP Group (BHP:ASX)

HOSTS Candice Bourke & Felicity Thomas|22 October, 2021

Meet your hosts

  • Candice Bourke

    Candice Bourke is a Senior Investment Adviser at Shaw and Partners with over six years' experience in capital markets and wealth management, specialising in investment advice including equities, listed fixed interest, ethical investing, portfolio risk management and lombard loans. She discovered her passion for finance and baguettes, when working and living in France, and soon afterwards started her own business (all before the age of 23). Candice is passionate about financial literacy for women which lead her to co found Her Financial Network, and in her downtime, you’ll find her doing any of the following: surfing, skiing, reading a book by the fire, or walking her black lab, Cooper, with a soy cappuccino in hand.
  • Felicity Thomas

    Felicity Thomas is a Senior Private Wealth Adviser at Shaw and Partners with over nine years experience in wealth management and strategic financial planning, covering areas including Australian and Global equities, portfolio construction and risk management, bonds, fixed interest, lombard loans, margin lending , insurance, superannuation and SMSFs. Felicity started her career in finance at BT Financial Group, speaking to customers about their superannuation and investments. This led to the realisation becoming a Financial Advisor would be the perfect marriage of her skills and interests - interpersonal relationships and economics. She is passionate about improving women’s access to financial resources and professionals, and co founded Her Financial Network. On the weekends you’ll find her on the beach, or going for an adventure with her black cavoodle, Loki.

It’s time for Felicity and Candice to look at their Order Pad, where they reveal what’s on their respective desks, and talk through the research, analysis and thought process behind their ideas. Felicity is recommending a micro-cap Australian Technology company, called Silex, that is focussed on the development and commercialisation of the SILEX laser isotope separation technology. Candice on the other hand is pitching a well-loved blue-chip stock, with a $193 billion market cap and global operations. She’ll tell us why this well known mining company represents a great bargain right now.

Follow Talk Money To Me on Instagram, or send Candice and Felicity an email with all your thoughts here.

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In the spirit of reconciliation, Equity Mates Media and the hosts of Talk Money To Me acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people today. 

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In the spirit of reconciliation, Equity Mates Media and the hosts of Talk Money To Me acknowledge the Traditional Custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to their elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people today. 

Candice: [00:00:00] Talk money to me. Hello there, and welcome to talk money to me, I'm Candice Bourke 

Felicity: [00:00:06] and I'm Felicity Thomas and this is your need to know wealth podcast where we make the complex simple. We are back once again without order. Had episodes where we both actually pitch a listed idea. Some of these companies have maybe recently caught our attention, or some of them could be ones that we've been holding for a while now. If you're a regular listener, you'll become familiar with our style and the way that we made this podcast to help educate you on all aspects of your financial landscape. Now, Candice and I draw on our extensive expertise and experience in wealth management and capital markets to deliver clever financial and insightful finance conversations amongst ourselves and with our special guests. 

Candice: [00:00:44] Here we go. So coming back to our episode today, we will be chatting about, like mentioned, two very different stocks and the reasons why we're bullish on these names. We haven't yet had a sell. We always talk about that as a joke, but I'm sure one day we will. Now you guys know the drill, although we're talking about investing in making money in the markets. Please don't rely on the content discussed in this episode as personal advice. Financial advice and also, we're not talking about a financial product. The content on this podcast is general nature, and you should always seek professional, appropriate advice before making your own financial decisions. So the companies that listen I will be talking about on our show today are offered in good faith based on the facts known at the time and don't contain all the relevant information in respect to the financial products to which they relate. So essentially, guys, if something triggers during our episode today and you want to talk to us about your personal finances, maybe see if these companies know are a good fit for you. Send us an email. Alrighty. Well, let's quickly check back in to our growing order pad and the stocks we pitched so far.

Felicity: [00:01:46] Like Candice said. These are all been by so far what we're actually going to do to make things simple so that everyone can follow. We're going to base the returns from when you guys actually hear the pitch. Obviously, we're not recording on the same day we're releasing so currently in first place, according to the last traded price on the 18th of October. So last night we have Candice taking the lead with SVP. So if you bought it at $650 on the 1st of October, you would now be up seven point nine per cent, which is fantastic. Woo hoo. Yeah, great. So you're taking the lead now. Now, if you bought a dusk on the 10th of September at three point fifteen, you would now be up four point forty four percent. Fantastic. 

Candice: [00:02:27] I've been buying lots of candles of late, so maybe I'm the one pushing the share price up. 

Felicity: [00:02:32] You know that could be a it could be it. Then, if you bought TNT on the 1st of October at 22 and a half since, you know you'd be up 2.2 percent. And then sadly, Nitro, if you bought it on the 10th of September three point thirty two, you're only going to be up 1.8 one percent because we did have a little bit of a tech sell off. And as you know, both my stocks have been tech. So, yeah, I'm losing. 

Candice: [00:02:55] But look, the main thing is it's all good news, all in the green, which is like what we like to see. And all the stocks we've spoken about are all heading in the hopefully the right positive direction. Remember, folks, we don't like to check in our stock performances that often, but we also just can't resist updating you on how they're going. 

Felicity: [00:03:13] Exactly. I mean, this is really the fun part of investing in shares, but we also like to take a really long term view. And you know, for us personally, a long term investment is, you know, 10+ years for you. It might be one year on average. Don't play around with your portfolio too much or even worry yourself looking at it every day. I mean, we've got a great week this week. Last week was horrific. So, you know, you just never know what you can get 

Candice: [00:03:37] in the short term, and it's like a nice bottle of wine. You know, when you do your homework and you know that you're buying a good drop. The longer you leave it, the better it's going to age and it's going to eventually taste all about. It's all about delayed gratification. When you pop it, you're like, That is worth the wait. 

Felicity: [00:03:53] It is set and forget, 

Candice: [00:03:54] OK, so it sounds like you may have more of a speculative growth idea this time around. So I'm super intrigued. What are you going to bring to the pad, Felicity? 

Felicity: [00:04:03] Yeah. So this one is very speculative. It is very much in the high growth corner of the boxing ring. The company is called Silex and the code is SL X on the ASX. Now it's an Australian technology company. The market cap is 283 million, so it's a microcap, right? So tiny. Tiny, tiny. All right. 

Candice: [00:04:24] So what does Siletz do? I mean, I know what it does, but benefit of the doubt for our listeners. 

Felicity: [00:04:28] So the company has two main focuses, the first being zero emission nuclear power through uranium, where they are focussed on the development and commercialisation of the Silex laser isotope separation technology. Now, the primary commercial application of the technology is in the production of fuel for the nuclear power industry, which is licenced exclusively to global laser enrichment GLA, which you'll hear me talking about a bit, and a business venture comprising Salix with 51 per cent. And Cameco, 49 per cent now JLA is building a path to market in the US through that Paducah laser enrichment facility. So PLF situated in Kentucky. The facility will be capable of producing five million tonnes of uranium annually for 30 years via the enrichment of depleted uranium. Thales supplied by the US Department of Energy, D.O.A.. So this is their first primary focus being uranium enrichment for the production of uranium fuel for the nuclear power industry. Tongue tied. Got it! 

Candice: [00:05:41] And I think Biden's been pushing the uranium agenda a lot lately, so it is very interesting in an interesting sector. You know, I'm intrigued. Keep, keep going. 

Felicity: [00:05:50] I also think this why it has gone up significantly in the last two years. Well, I mean, I actually bought this at about 30 cents, maybe even less. 

Candice: [00:05:59] Right? What's a trading roughly now, 

Felicity: [00:06:02] a dollar 42? I'm pretty sure. Yeah. The second focus is the silicon enrichment for the production of zero spin silicon, so it's a key enabling material for the processor chips in the emerging quantum computing industry. Now, the silicon may actually produce is ninety nine point ninety five per cent pure. So unlike your natural silicon, you're natural. Silicon can't be used in quantum computing. It's quite interesting. 

Candice: [00:06:27] Yeah, and you need the most purest form of silicon, really for the semiconductor industry, said. So they're in that space, aren't they? 

Felicity: [00:06:35] Yes, which is also boomed over the last year or so. You know, so on that side, Alex has developed a semiconductor material technology known as C R Air. There's lots of acronyms in this one, isn't it? So, which was produced by UK based IQ in 2018? Now this technology is currently being commercialised by IKEA for application in the 5G mobile communications industry under a licence and royalty agreement signed in 2015. You know, it's very unique as this semiconductor tech is moving for commercial deployment in 5G mobile handset filter applications. Do you know what a 5G handset application is?

Candice: [00:07:15] No, I actually don't. You're talking about mobile phones, really in particular.

Felicity: [00:07:18] Yeah, pretty interesting. 

Candice: [00:07:19] Which is a key point, right? Because 5G, we keep hearing it's the future for the digital revolution that we're about to embark on a 

Felicity: [00:07:26] video and 5G, which you should probably post on Instagram. 

Candice: [00:07:28] I will. I will do that because it feels demoralising and like a rejection. When you find guys, you know, 5G down to 4G and 3G, and everything is so slow. So the way that we live in today's modern society is we demand that high speed internet, although Seiler X, you know, is considered a micro small cap like you've explained, it's not a new business right now. 

Felicity: [00:07:50] It's not. So it was actually founded in 1988. Now they first invented their Salix laser isotope separation technology in the 1990s in Sydney, so been around a really long time. So their aim is deployment in the US. Our full scale pilot by the mid-2020s, I think it's around 2029. So I said before they're going to produce in Kentucky, over five million tonnes of uranium annually for 30 years. Now this is equivalent to a Tier one uranium resource, so it's actually ranking in the top 10 uranium mine productions by volume in today's standard. 

Candice: [00:08:30] So, so really, if you're wanting to invest in uranium regardless of being Silo X or not, it's really like a decade play. 

Felicity: [00:08:38] It definitely is. And look, they're primary revenue model is enriching stockpiles of U.S. government uranium tails. So, you know, the technology has demonstrated its capability of enriching uranium with lasers and prototype scales that have actually shown they're significantly more efficient than the centrifuge, potentially offering lower overall costs. I mean, Silex is other project partner. Cameco is actually one of the globally top two uranium suppliers.

Candice: [00:09:08] And that's a key partnership for them, correct? Yeah. And so, you know, for people that may not be familiar with uranium, like why uranium? Why is everyone talking about that now?

Felicity: [00:09:18] Okay, so uranium is a heavy metal, which is predominately used as a feedstock for the nuclear power industry. Now there's a significant potential uranium supply shortage that's forecast. So why we believe uranium, you know, they structural supply deficit could occur without a timely increase in production. So by saying that that means demand could grow significantly, they're also going to grow significantly because uranium is the zero emission nuclear power. I mean, I'm pretty sure our government just got into an agreement with the US and UK for uranium nuclear submarines. Now. Uranium prices must keep increasing, essentially to provide stimulus for the increased production. You know, we've been positive. Uranium markets, you know, which have been depressed since Fukushima. So, you know, stockpiles are depleting. Supply has been curtailed and the market is showing, you know, finally signs of life again. Our forecast assumes a multi-year price spike at us 85 pounds before settling to our long term U3 08 realised price assumption of 60 pounds in 2020. 

Candice: [00:10:28] Yeah, so that's a really interesting point. And I guess coming back to it has been, you know, a bit unloved uranium overall as a commodity, but now it's back in the limelight. But if you come back to the business for the city, I guess one of the key financial highlights that really took your eye. 

Felicity: [00:10:44] Yeah. Like, why have I chosen it for our own iPad now? Yeah, and not previously, you know, I think obviously this is speculative buy, but it's not as speculative as it used to be when I bought it at 30 cents. They've recently decreased the balance sheet by their recent capital raise, and they've got about 22 million in net assets currently. You know, the Silex technology is the only known third generation laser based uranium enrichment technology under commercial development today. I think that's a key driver as to why I really like it. You know, interestingly enough, the US market imports about 90 per cent of the uranium supply currently. So this, I guess, new mine is essentially going to be the US is, you know, the US is uranium ticket. Well, that's, you know, saving grace because I think it is super important that we are leaning towards, you know, your clean energy, zero emission targets. You know, the Paducah laser enrichment facility is also going to be net NPV positive at a realised price of US pounds. 

Candice: [00:11:45] That's good because if the forecast is saying us pounds, they're, you know, positive even if it gets distressed down to 43 US levels. So that's a good sign. 

Felicity: [00:11:54] Correct. And their post-tax NPV is us 390 million with an internal rate of return of 16 per cent, which is a pretty impressive 

Candice: [00:12:04] double digits every day of the week. We'll take that. 

Felicity: [00:12:06] That's it. And look their zero spin silicon. So Z Dash aside, technology is a unique form of isotopically enriched silicon required for the fabrication of next gen processor chips, which will be powered by silicon based quantum computers. We're currently carrying this and notional value of about Australian 30 million for this. And then finally, we've also got the CRH technology, which is trademarked for 5G mobile handsets applications, which we spoke about being purchased by the UK in 2018. For us five million. You know, we're taking a valuation that they would this would be worth about 10 million Aussie. 

Candice: [00:12:48] So well, that's a good boost to the overall valuation and share price at the end of the day. 

Felicity: [00:12:52] Yeah, that's it. I mean, yet it's not making money right now, but I think what will actually probably make money the quickest is actually going to be their silicon production. So, you know, I don't think we've gone through this, that they were approached by you, NSW in 2018 to actually look into silicon production for biomedical science, a cyber security, quantum computing, etc. Now, so the silicon market actually has supply chain issues in Russia currently. Now, the project is valued at about eight million, and it's a three year project which actually launched at the end of 2019. Now, the goal was to establish reliable, cost effective production of silicon for potential sales. You know, domestically and offshore. You know, Silex has actually put $3 million of their own money into this project, and they are saying that from 2023 onwards, producing silk, they'll be producing silicon for their project and partners as QC, which actually has a value of 500 USD per kilo of silicon. So this is going to be the most realistic making money. 

Candice: [00:14:01] 2023, really. So silicon is really their ticket in the short term. Uranium's their long term play 

Felicity: [00:14:07] really see it. And I mean, one kilo of silicon, 500000 us. How do I get that?

Candice: [00:14:12] Yeah, that's an incredible margin. 

Felicity: [00:14:15] That was exactly I mean, key risks that you probably need to think about when you're looking at really, really small companies like these is the key personnel risk is a lot larger than other organisations. I mean, they may need to raise more money for their Paducah laser enrichment facility to get actually into production. I mean, that might be modelled incorrectly. Currently, there are several factors that you need to look out for when it comes to, you know, these kind of speculative growth companies. To summarise why, I believe this is a buy, you've got the Jelly JV, which is Silex Cameco aiming to demonstrate Silex uranium enrichment technology at pilot commercialisation stage by 2029. You've got Glees Path to Market focussed on the Paddick opportunity a large, low cost uranium production. Project with additional potential for uranium enrichment to produce Aliyu and HLA use nuclear fuels. You've got long term fundamentals for global growth in nuclear power, which remain positive. However, a significant uranium supply deficit is looming in the absence of timely increase in production. So I mean, that to me seems like it's a buy. You've got silica silicon enrichment technology being developed to produce zero spin silicon in support of global efforts to commercialise silicon quantum computing. And then you've got still accessing several other applications of this technology, potentially in medical radioisotopes. 

Candice: [00:15:37] They're the key, I guess, reasons why you like it. But I guess the million dollar question now is how do you see the share price tracking in the next few months? You've mentioned it is volatile, right? You started at 30 cents, up to $6 a one point. Now, you know, kind of the mid $1 levels. So what should we look out for if we're keen on Xilinx? 

Felicity: [00:15:55] So I think if you like the idea of thematic investing, then this is a really good speculative, high growth idea. We've actually made some minor updates to our model. Our valuation has been reduced from $2. 60 to two point forty five based on dilution and a larger capital raising than previously anticipated. That basically means our showroom partners 12 month price target is about 71 per cent from current levels. And if you look at consensus price target the average for the next 12 months, it's sitting at around $2 12 per share, which is about 49 per cent on current levels. So I guess that's why I like Xilinx, and I think it deserves a spot on our growing water pad. But I'm really excited to hear about your classic, a bet ever evolving stock idea. But before we do hear about it, we're going to take a quick break and hear from our sponsors. Okay, Candice, what I do. Do you have for us today? 

Candice: [00:16:44] Okay, so I'm pitching a large cap resource company. Like you mentioned, it's very much evolved over the decades. So this giant resource company is one of the top largest mining companies in the world. And like Silex, it's not a new company, but it has a longer history because it dates back to 1885. And really, since the merger in 2001, this company has become even more of a household name, I would argue. When the Australian Broken Hill Company joined forces with the Anglo-Dutch Billiton Company. So if you haven't already guessed it, I'm talking about BHP today, BHP if you're not familiar. Shame on you, especially if you're an Aussie listener. It's a 193 billion market cap mining company, which has operations globally, as we know, mainly in iron ore, coal, copper, gas and oil. More recently with the Woodside announcement. So the code on the ASX is BHP. And now the reasons why I think BHP is one of the better value stocks right now in the ASX and I want to bring it to the altar pad is because if I look at the fundamentals right, the company has solid fundamentals and metrics, in my opinion. Secondly, relative to the market and its peers, like we talked about earlier, that's one of the key things for value stocks. You want to find it trading at value in your opinion, right? Or discount? And then finally, the investments into the future facing of commodities and resources BHP, you wouldn't realise it is actually taking a bit more of an ESG focus. It's normally lagged behind Fortescue and Rio, but now it's really changing its portfolio to be more ESG focussed. 

Felicity: [00:18:17] When you say the company's got solid fundamentals, what do you kind of meaning by that? 

Candice: [00:18:21] Let's look at the balance sheet first. As of 30 June 2021, their financial reports, they were saying BHP has sixteen point eight million US cash on hand. By the way, all the figures because BHP reports in USD, it's all to, you know. So 130 million total assets, very low levels of debt at only 48 million. So that means they're actually sitting around 52 million of total shareholder equity value. And they're also extremely cash flow positive as a business, which you know that I like that. So a bit of, you know, seventeen point six million. And when you look at their capex and expenditures, it's pretty low. So they're free. Cash flow figure is around nine point three million USD. So if we look out to the next 12 months, the fundamentals are also forecasting strong levels of thirty three point seven million USD, so essentially double from where we are now. Love that which brings their free cash flow positive figure even further up the scale to 19 million.

Felicity: [00:19:20] Yeah, that's great. Okay. So you know, there is a lot of ESG talk at the moment. So what part is the market missing? So I think 

Candice: [00:19:27] the market's not looking at the balance sheet, the fundamentals of the business. And also some investors are too short term when it comes to ESG. They want ESG to be here today, but that's not going to happen overnight. And the reality is traditional resources will be around for another few years. Until renewable energy sources have some more investment to go, they become more mainstream, which they're not yet. They're not fully cost effective. We keep hearing that a lot and then 100 percent reliable. So these factors which are being overlooked, in my opinion, are allowing the stock to trade at a discount to the underlying value to the business and the assets of BHP, which BHP is only trading at 13 times. 

Felicity: [00:20:06] And look, I think it's important to note that they've only got one thermal coal mine left, which they're trying to get rid of, 

Candice: [00:20:12] so they've really slowly exited out the portfolio from traditional fossil fuels. 

Felicity: [00:20:16] Yeah, fantastic and focussing on those future facing commodities. So Candice probably good to explain when you are looking at value stocks, the ideal P range you want to look at is between 10 times and 20 times. And now for growth stocks, you're obviously going to pay a higher pay multiple for their growth projections. You're a classic example here. Is Tesla right? It's trading on triple pay lately, around three hundred eighty six times. Yeah. 

Candice: [00:20:41] And if you compare Tesla to like any traditional value stock, what comes to mind is always a bank. Let's pick something random like CBA. They're only trading at 20 times, and I'm talking about BHP now, the traditional resource company, 13 times. So I think it's offering good value fundamentals in that perspective because not only does the balance sheet look super strong for BHP right now, but the company is signalling that it's going to look even stronger in the next 12 months, which is what you want to look for in a value stock because history shows us right. Traditional value stocks when it's good times for the balance sheet, you know they've got high profits, they've got lots of cash on hand, they're driving cost down and capex, which we know BHP is doing. What are they traditionally normally do? 

Felicity: [00:21:24] Well, they reward shareholders with their larger special dividends.

Candice: [00:21:28] Exactly. And that's 100 per cent or BHP did. They completely blew the market out of the water when they reported this reporting season with a huge dividend of, you know, yield, I think was about ten point three percent. So it's massive beat on that expectation, and I think based on the fundamentals and the growth investments in the ESG space, which we'll get into in a second, I think we can expect another great potentially double digit figure in the dividend yield in the year ahead. 

Felicity: [00:21:54] You didn't mention the ESG factor. Can you tell us a little bit more about how it's more ESG focussed and why, as you know, a sustainable investor, I'd want to go into BHP. 

Candice: [00:22:06] You and I both ESG focussed investors, so it's never been on the ESG radar list before, and it's probably still not fully ESG favourable for a lot of traditional ethical investors. But we can't ignore that they are slowly exiting out of the fossil fuel industry. That's a good take. That's a win. You should reward companies that are moving towards in a more future facing commodities, in my opinion. Yeah. So apart from the obvious ESG statements and all the nice marketing messages that the company and the 

Felicity: [00:22:33] targets, they've got some good time. They have some great targets. 

Candice: [00:22:36] If you look past all the, you know, company statements. In their recent financial report, BHP made some big changes and announcements in the portfolio and the corporate structure in order to grow more strongly and pivot towards the world's need for decarbonisation. So Mike Henry, the CEO of BHP, announced that they're investing 5.7 billion U.S. in the Jensen Stage one project, which is located in Canada, which is a new high margin business in the world's best potash basin. Don't worry, I'll explain what potash is in a moment. This basically opens up the new future growth path for BHP. Secondly, the consistent message that BHP Board is signalling to the market is they're really wanting to pivot towards these future facing commodities. So they've made an offer to acquire that Canada's Naughten resources to gain access to a highly prospective nickel basin in the attractive region. So the Naughten board has unanimously kind of recommended the shareholders accept the BHP offer. So it looks like the deal's going to go ahead here. 

Felicity: [00:23:38] Yeah, great. So I think people know, you know, a little bit about nickel and how that's considered ESG. But why potash? I mean, I feel like potash is we've only really heard about it in the last year. 

Candice: [00:23:48] It's really now coming up into the conversation more and more. And that's because it's an essential nutrient for plant growth. So Pot US is a vital link in the global food chain supply conversation. You know, we know with globalisation the demand and the supply chain is intensifying. And while cultivated land area is going to remain almost static, the global population will be close to 10 billion people, 10 billion people. That's a lot of people, a lot of people by 2050. And of that, three billion are expected to join the growing middle class by 2030. So even sooner. And so now between the middle of the century, food demand is expected to grow by 50 percent. So sustainable increases into the crop yields, that's crucial to feed the world. We can't just keep going the right. We're going. We need to change something. We've got to change the status quo. Mm-Hmm. So in Vance's into the farming practises, farmer education, new seed varieties, all these need to be utilised now in order to optimise the future yields in the agricultural sector. And as the quantity of production grows, so does the amount of potassium removed by harvesting. So essentially, the sustainable, targeted use of potash fertiliser, which is what BHP is investing in, will be critical in replenishing our soils to keep up with this huge global food demand.

Felicity: [00:25:05] Fantastic. So essentially, potash allows for more sustainable long term farming,

Candice: [00:25:10] and you've now that on the head there. So it's solving an east fertiliser problem, but also solving the concerning supply and demand equation that we're facing. You know, it's estimated that potash could double by the late 2040s, by which point it could be a 50 billion US market. So BHP is smart here. They know it's a growing market and they're investing heavily because more than 90 per cent of the global demand for potash comes from the agricultural sectors. You know, that's because 55 million tonnes of potassium chloride is applied as fertiliser annually. That's whopping, you know, if we break it down, that's seven kilos per person on the planet each. So at consensus prices, you know, the go forward investment on the Jansen project is that it's expected to generate an internal rate of return to 12 to 14 percent double digits by double digits. Love that. And an expected payback period of seven years from the first production. Also underlying our margins of 70 per cent and our key characteristics when you're looking at value stocks. Given its expected first quartile cost position, so essentially it's good for business underlying profits, and it's also taking those ESG factors. 

Felicity: [00:26:19] Thanks for explaining that Candice. So we know that potash doesn't really get as much, I guess limelight when it comes to ESG, but our, you know, copper and nickel do so. John, explain a little bit more about how BHP is in that area now. Yeah, copper. 

Candice: [00:26:32] Nickel are definitely the more loved future facing commodities, and that's because the world need more of it, because these are natural resources that. The key for electrification, renewable energy and power electric vehicles, as we know it's the key commodities in the lithium battery development. So the market investors aren't really kind of talking about this, but what people don't realise is that iron ore and high quality met coal is actually used to produce the steel for infrastructure, which includes infrastructure decarbonisation. So you need to still stay a little bit traditional in terms of the resource play in order to get fully renewable. So the pivot into these future facing commodities being copper and nickel. It's a key move for BHP because as very long tail winds of about 100 years there, there's heaps of growth upside that we're seeing. And the commodity prices is coming off a cycle low. So that equals happy days for BHP 

Felicity: [00:27:27] 100 per cent. And I think you know why, why BHP, I think believes is such a good business is they've kind of pivoted throughout the last 10, 20, 30, 40 years. They seem to be able to pivot quite well into the direction that the world is kind of leading, which is fantastic.

Candice: [00:27:43] And if we remember back to like the early 2000s Fortescue, everyone was shocked when they were going to enter the coal market at that point. And then they've done it for the last 20 years, and now they're really exiting the coal market and moving towards a more renewable energy plan, 

Felicity: [00:27:57] focussing on hydrogen. But that's going to be quite expensive but interesting. 

Candice: [00:28:01] So, you know, BHP is just kind of following suit with Fortescue. In that sense, they're slowly exiting out. Now that's

Felicity: [00:28:08] really great. Candice, you know, we love BHP, but they will be exposed to a number of risks that shareholders should probably be aware of and potentially new buyers of BHP. 

Candice: [00:28:18] Yeah. So I mean, like when you invest in any resource mining company, big or small, there's always general risks that comes with it. So the big one, the elephant, the room is the macroeconomic conditions, you know, both domestic and globally. What happens on that scale is going to affect BHP financial performance, such as inflation, interest rates, government policy, employment, ESG factors. You know, we've got to watch out for those market conditions. Also, as BHP is a listed company, its share price is going to be subject to numerous influences that may impact the trends of the market and the share price of the company. Watch out for that. The big one, obviously, is commodity price volatility and the exchange rate risk, right? So I mentioned earlier all those metrics BHP reports in USD, but obviously trades on an Aussie market mainly. So you've got some fluctuations that you've got to be aware of, which is really out of BHP control at the end of the day. And BHP revenue and cash flows are largely driven still from the sale of copper, silver and gold. So the financial performance of BHP is exposed to those fluctuations in those commodities. And as we know, commodity prices, they're volatile. They can move in really large swings. 

Felicity: [00:29:29] But you know, we find that this kind of stuff does flush out over the long term anyway. You know, you just are exposed to, you know, effects and things like that more in the short term. But it all comes out in the wash, doesn't it? 

Candice: [00:29:41] Yeah, it definitely does. 

Felicity: [00:29:42] So this is the most exciting part. This is why people are listening. What about the valuation? Where do you see the share price moving in the next 12 months? 

Candice: [00:29:51] This is where we get excited because it's where it is now. But where is it going, right? So quick recap Market cap is 193 below net income impressive of 13 million revenue 60 million Highly profitable business Like we know, 18 per cent profit margin even margin of 41 per cent, but growing to 55 per cent next financial year are a 19 per cent, currently growing to 32 per cent. And similarly, for the ROIC and EPS growth, it's expected for the earnings per share growth to jump by eight and a half times in 2022. And then for a value stock, you can't ignore the dividend share. This is expected to even conservatively be three point seventy eight, meaning a yield of 9.5 per cent. Plus it's fully franked for your Aussie investors. So strong metrics now, even stronger metrics, and they're indicating the next 12 months. So the most bullish price target out there that we can see is sixty point forty one for BHP to reach that the next 12 months being upside of 55 and a half percent. And we are and partners, our research team place a $48 price target on BHP that's roughly 24 and a half percent upside on current levels and the average buyer because we always look at averages. The market consensus is signalling BHP could reach in 12 months a forty five point seventy six price target. It's giving conservative even 18 per cent upside. That's still a really good return. So, yes, BHP is still a traditional resource company for now. I'm an ESG investor, but I look to reward companies that are moving towards these future facing commodities and 

Felicity: [00:31:24] have a lot of momentum that way as well. 

Candice: [00:31:26] Yeah, and it's got solid values, solid fundamentals. We know it's going to take some years to fully fade away from coal and iron ore. We're not there yet. So while we're not there, pick up BHP sold company solid by offering a. Solid traditional value investment metrics, in my opinion. 

Felicity: [00:31:43] Yeah, I mean, I think BHP is the new kind of investment you value growth, which is what we're looking at a lot from 

Candice: [00:31:50] that fine balance, 

Felicity: [00:31:51] right? That's it. It's not just value. It's not just growth. This is a value growth. So in summary, today we both pitched commodity based companies and will obviously continue to track them. You know, how, say, Alex, how BHP and how all of our other stocks already added on the growing old iPad continue to go in the next three weeks, 12 months, 20 years because mine is going to take a while to play off? Potentially. Please remember, although Candice and I financial advisors, please note out of discussions today do not constitute as personal financial advice. As always, you should seek professional financial advice before making any financial or investment decisions. I did not want anyone giving me a bad review because you invested in selecting has gone backwards in the short term. OK, now feel free to reach out to us on our social media channels or send us an email which is displayed in the show notes below. Our Instagram handle is Talk Money to Me podcast and to next time catch up.

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