The BHP Group Ltd (ASX: BHP) witnessed a commendable 11% surge in its share price during 2023, outperforming the S&P/ASX 200 Index (ASX: XJO), which experienced a 9% increase. As the largest entity in the ASX 200 with a market capitalization of $257 billion, BHP's influence on the ASX 200 is substantial. This article explores the factors that propelled BHP's success in surpassing the ASX 200 Index in 2023.


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BHP's Dominance in the ASX 200

BHP's prominence as the leading business in the ASX 200 is characterized by its staggering market capitalization, solidifying its pivotal role in shaping the ASX 200 landscape.


Commodity Prices as the Driving Force

The backbone of BHP's revenue lies in the production of abundant resources, with iron ore being a pivotal contributor. The fluctuations in the iron ore prices significantly impact BHP's profit margins, making its share price inherently volatile.


Iron Ore's Profound Impact on BHP's Earnings

In the fiscal year 2023, BHP reported a total underlying EBITDA of US$28 billion, with iron ore accounting for a substantial 60% at US$16.7 billion. The current iron ore price, exceeding US$140 per tonne, has witnessed a 20% increase in 2023 due to sustained demand and economic support measures from the Chinese government.


Profitability Challenges in FY23

Despite the overall success, BHP faced a 58% decline in attributable net profit in FY23, totaling US$12.9 billion, leading to a full-year dividend per share of US$1.70. The intricate relationship between iron ore prices and BHP's profitability is evident.


Expectations and Investor Influence

Investor sentiments and expectations regarding future profits and dividends play a crucial role in shaping the BHP share price trajectory. Projections by Commsec suggest an optimistic outlook for BHP's earnings per share (EPS) in FY24 and FY25.


Projections and Valuation

Commsec forecasts BHP's EPS at $4.17 in FY24 and $3.77 in FY25, potentially resulting in an annual dividend per share of $2.19 and $2.18, respectively. This places the current BHP share price at 12 times FY24's estimated earnings and 13 times FY25's estimated earnings, with a grossed-up dividend yield of 6.2% in FY24 and over 6.1% in FY25.


Conclusion: BHP's Resilience and Future Prospects

In conclusion, BHP's remarkable performance in 2023 underscores its resilience and adaptability to market dynamics. The strategic focus on commodity prices, especially iron ore, coupled with investor expectations, has positioned BHP as a frontrunner in the ASX 200.