BHP Billiton: With a wide spread of
commodities including iron ore, coal and oil, BHP has been right at the heart
of the recent upheavals in the commodities markets. This is reflected in these
interims to 31st December 2014, with underlying operating profits down 25.5% at
$9.2bn, despite production being up 9%. Eps were also down sharply at 80.2c
(-47.4%), but the dividend was raised 5% to a, still covered, 62c. As with many
other mining companies there is a big programme of cost cutting, capex reviews
and project reappraisals underway. The tangible results are that BHP generated
$4.1bn of free cash flow, helped by productivity gains and 23% of capex
reductions, with spending down to $6.4bn in the half year. Capex is now 40%
below peak levels and is forecast to reduce further to $10.8bn in FY2016. The
productivity gains are ahead of schedule, with over half the $4bn targeted by
30th June 2017 already achieved. All this effort has left net debt down at
$24.9bn, a gearing ratio of 22.4% and still rated at A+.
The demerger of South32 (a
mixture of some aluminium, coal, manganese, nickel and silver assets) is on
track to complete in the first half of this year and BHP have re-iterated that
they will maintain a progressive dividend policy. Again they repeat that "any
dividends from South32 will represent additional cash returns to
shareholders". In their outlook, BHP are frank in seeing 2015 as a tricky
year, but this is when being big and strong helps, as smaller fry drop out of
the picture.
Say that they scrape 65c of
eps in the second half, to make 145.2c for the year. At £:$1.54, that is 94.3p
for a PE of 17x at today's pleased looking 1610p. That looks high, but could
well be on near trough earnings. Teeing off from the interim dividend, if we
assume a modest rise in the final to 65c, that makes 127c (82.47p) for the
year, a nice yield of 5.1%. For FY2016 you should get a bit more than that, but
on the reduced equity post the South32 group demerger, plus maybe something
from South32. To me that all looks like you are being paid well to wait for the
commodity upturn, whenever that is, and patience should prove to be a virtue. (Neil Cumming, 24th
February 2015)
These comments are not a personal recommendation to deal. Any
investments can fall as well as rise in value, so you could get back less than
you invest. I may have a financial interest in some of the stocks written
about. www.dividendpower.co.uk
or e-mail at info@dividendpower.co.uk Twitter:
@DividendPower
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