Wednesday, 11 July 2012 - 20:00
BHP Billiton Plc ? Strength in Diversity
BHP Billiton is one of the world’s largest diversified natural resource companies, and one of the largest companies by market capitalisation listed on the JSE. It is the result of the 2001 merger of the UK-based mining house Billiton and Broken Hill Proprietary (BHP), Australia’s foremost resource company. The two companies’ complementary assets and expertise in different commodities proved to be a successful combination ever since. BHP Billiton is a dual listed company, comprising BHP Billiton Limited with its headquarters in Melbourne and BHP Billiton Plc located in London. BHP Billiton Limited is listed on the Australian Securities Exchange, while BHP Billiton Plc has a premium listing on the London Stock Exchange and a secondary listing on the JSE.
The company has a very strong balance sheet and cash flows, but its true strength lies in its ability to diversify across different geographical regions and a wide range of commodities.
BHP Billiton is a major global player in the mining and production of aluminium, copper, energy coal, iron ore, manganese, metallurgical coal, nickel, silver, and titanium. The company also operates in the petroleum industry, being involved in exploration as well as production of oil and gas.
In terms of geography, the company’s diversification is hard to match. It operates in more than 100 locations on six continents, with most of its mining operations concentrated in Australia, South America, and South Africa.
The company has reported strong growth in revenue in its interim results for the half year ended 31 December 2011, with record high production recorded for iron ore and natural gas. Revenue grew by 9.7% to USD 37.48 billion and underlying EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) increased by 8.3% to USD 18.74 billion. EBITDA is a useful measure for comparing earnings across companies and industries, as it seeks to reduce the effects of financing and accounting decisions on the reported earnings number.
Net operating cash flow increased slightly, up 0.7% to USD 12.28 billion, while attributable profit to the BHP Billiton Group declined by 5.5% to USD 9.94 billion. Profits were impacted negatively by the drop in commodity prices towards the end of 2011, as well as slowing demand from the high growth economies of China and India.
The company managed to increase its interim dividend per share by 19.6% to 55 US cents, continuing a recent trend of increasing dividends paid to shareholders.
The table below illustrates the sources of revenue and EBIT (Earnings Before Interest and Tax) for the half year ended 31 December 2011.
Significant increases in revenue for petroleum, iron ore, and energy coal was partly offset by decreases in revenue for base metals, stainless steel materials, and manganese. These figures illustrate the benefits of diversifying across different sectors, as the company’s revenue stream is not overly exposed to the supply/demand or price cycles of any specific commodity. This should result in enhanced earnings stability over the long term.
BHP Billiton currently trades on a PE ratio of 7.48 and a Dividend Yield of 3.45%. The forward PE increases to 9.01 as a result of a consensus forecast of a drop in earnings at the release of their financial results for the year ended 30 June 2012.
Billiton currently trades at a PE multiple that is very close to its lows during the global financial crisis of 2008, and the same can be said for most shares in the JSE’s resources sector.
The main factors affecting the fortunes of resource companies going forward remain the European debt crisis and its effect on investor confidence vs. risk aversion, and the question of whether demand for resources in the East will slow down significantly or not.
Considering their stance on these two issues, investors have to first decide when these valuations become attractive enough to warrant an increased exposure to the resources sector, and then select companies within the sector whose fundamentals indicate that they could outperform their rivals over time.
BHP Billiton might just be such a company.
Cor van Deventer
Sources: MoneyWeb, www.billiton.com
021 914 4966
Wed, 11 Jul 2012
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Investment income for the interim period ended 30 June 2012 increased to R45.6 million (2011: R42.8 million). Profit attributable to ordinary shareholders rose to R9.7 million (2011: R5.5 million), while earnings per ordinary share jumped to 110.2cps (2011: 62.5cps).
A debenture interest payment (number 50) of 30.0 cents per debenture in respect of the six months ended 30 June 2012 is payable to debenture holders recorded in the debenture register of the company on. . .
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Latest Consensus Changes**
|KIO||KUMBA IRON ORE LTD ||HOLD||09 Jul|
|SLM||SANLAM LIMITED||HOLD||06 Jul|
|MST||MUSTEK LIMITED||BUY||05 Jul|
|IPL||IMPERIAL HOLDINGS LTD||HOLD||05 Jul|
|RLO||REUNERT LIMITED||SELL||05 Jul||
|Expected||Company Name||Fin. Date|
|18 Jul 2012||FORBES||May 2012 (Q)|
|18 Jul 2012||LONRHO||June 2012 (Interim)|
|19 Jul 2012||AFROX||June 2012 (Interim)|
|19 Jul 2012||MICROMEGA||June 2012 (Interim)|
|19 Jul 2012||ROCKWELL||May 2012 (Q)|
|ATNP||Allied Electronics Corporation Ltd.||11/07/2012||Unconfirmed|
|ATN||Allied Electronics Corporation Ltd.||11/07/2012||Unconfirmed|
|ALT||Allied Technologies Ltd.||17/07/2012||Confirmed|
|ILV||Illovo Sugar Ltd.||18/07/2012||Confirmed||
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