Tuesday, 24 February 2015

BHP Billiton - Interim Results

As the largest mining company in the world, BHP Billiton is essentially a one-stop commodity shop. Unfortunately, its size cannot protect it from a collapse in commodity prices - its portfolio is based on iron ore, oil, coal, and copper and the price of all four are back to the levels of 5 or 6 years back.

As a result BLTs share price has retreated from a high of £21.00 last August to a low of £12.75 by December - at which point I topped up my holding.

BLT has today issued results for the half year to 31st December 2014 (link via Investegate). Underlying earnings came in better than expected at $14.5bn - a reduction of 12% on 2013. Underlying eps fell 31% to 100.7c (145.9c 2013)

Commenting on the results, chief executive Andrew Mackenzie said:
"Despite significant falls in the prices of our main commodities over the last six months, group margins remain healthy, free cash flow has increased and we have strengthened our balance sheet. We started to prepare for a sustained period of lower prices almost three years ago by increasing our focus on efficiency and lowering our investment. Since then, we have achieved annualised productivity gains approaching US$10 billion and reduced capital spending by almost 40 per cent. "

Over the past 6 months, capex and exploration expenditure reduced by 23% to $6.4bn. Over time, this choking off of supply should serve to reverse the commodities price decline.

Over the past couple of months the share price has seen some upward momentum - around 20% - but I suspect it may be a little while before we see a return to £20 and above. There’s no getting away from the fact that Billiton is a cyclical play and the share price will always fluctuate with global supply and demand.

Income

Whilst the share price may be akin to the ultimate rollercoaster ride, the reason I hold the shares is for income. The Company have an enviable record of paying an increased dividend for well over 10 years - since 2004, CAGR is 16.6%. Over the past 5 years the pay-out has been slowing a little - (from 2010) - 57p, 66p, 73p, 75p and last year 79p an increase of 39% and CAGR of 8.5%. Earnings are in US dollars so there will always be FX considerations.

BHP Billiton has a progressive dividend policy. The aim of this policy is to at least maintain or steadily increase the base dividend (in US dollars terms) at each half-yearly payment.

CEO Andrew Mackenzie said : "We are confident that we can maintain our progressive dividend policy and continue to selectively invest in projects that offer compelling returns".

The interim dividend has been lifted by 5% to 62c - which translates to around 40p at current exchange rates. I have pencilled in a figure of 82p for the full year. BLT say that following the proposed demerger of South32, which is due to be completed by June, they will maintain a progressive dividend policy and any dividends from the new spin-off company will represent additional cash returns to shareholders.

Because of the cyclical nature of the business, holders of BLT should always expect it to be a bit of a rollercoaster ride. For those who can stomach the ride, I believe it continues to offer value for the income seeker. At the current share price of around £16.00 the yield is just over 5%.

As ever, please DYOR.

2 comments:

  1. I am kicking myself for not getting in when I had the opportunity at £13. You did a good job topping up when you did!

    Cheers

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    Replies
    1. Thanks TV - very rarely do I buy at the bottom but seem to have hit the nail on the head with this one (so far....)

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