Wednesday, 26 August 2015

bhp billiton - Full Year Results

As one of the largest mining company in the world, BHP Billiton is essentially a one-stop commodity shop. However, after the demerger of South32 last year, it is now more focussed on its four most profitable areas - iron ore, coal, copper and oil.


BLT has this week announced its results for the full year to 30th June 2015 (link via Investegate). Obviously the problems in China have impacted as the demand for raw materials has sent prices of key commodities much lower. Underlying profits fell by 51% to $6.4bn (last year $13.2bn) from total revenues of $44.6bn ($56.7bn 2014).

Commenting on the results, CEO, Andrew Mackenzie, said:
"In the short term we expect ongoing economic reforms in China to contribute to periods of market volatility. And, while we remain confident in the long-term outlook for commodities demand as emerging economies continue to urbanise and industrialise, we have lowered our forecast of peak Chinese steel demand to between 935 million tonnes and 985 million tonnes in the mid 2020's. This backdrop will favour low-cost producers with economies of scale.

"Importantly, we do not require the same level of investment to grow as in the past. Improved productivity can further stretch the capacity of our existing operations to increase volumes at very low cost. For example, in Western Australia Iron Ore we can increase the capacity of our system from 254 million tonnes today to 290 million tonnes over time with minimal investment, while making more than US$20 per tonne margin at today's prices. Beyond this, we continue to reduce development costs within our project portfolio. However, we remain focused on value and will only approve projects when the time is right."

Because of the cyclical nature of the business, holders of BLT should always expect it to be a bit of a rollercoaster ride. The share price has been severely impacted in recent months and at £10 is around 50% lower than this time last year.

Dividend

To its credit, the board have stuck to their policy of maintaining a progressive dividend. The proposed final dividend is 62c making a total for the year of 124c - an increase of 2.5% on the previous year. Earning over the past year were down to 120.7c which obviously means the current dividend is not covered fully. Despite the best of intentions, the board could not keep paying out more to shareholders than it receives in earnings so a cut in the dividend cannot be ruled out in the future.

Over the past 10 years, dividends have increased from 28 cents to 124 cents - a CAGR of 16%. The annualised rate over the past 5 years has slowed to just 7.3%. At current prices, the shares are yielding ~8% which is clearly very attractive assuming the dividend can be maintained and commodity prices slowly recover over the coming few years.

Capital investment, which fell by a quarter to $11bn over the past year, is set to fall to $8.5bn over the coming year and $7bn in 2017.

The share price was up 6% yesterday at 1020p recovering from a 9% fall on Monday.

As ever, please DYOR.

2 comments:

  1. Ciao DIYI,
    I have some shares of BHP and I am dubious on what to do... I could average down massively (at present time I sport an hefty -20%), and I like the fact that they are the biggest "out there" in terms of mining and such. On the other side I worry a little about the dividend, although the cost reductions might bring the company on the "gain" side in the future... Need to read the report better, surely they are a very good company, the bear market in commodities is not helping them at all...

    ciao ciao

    Stal

    ReplyDelete
    Replies
    1. Stal,

      Its an interesting dilema with such a volatile share. I took the opportunity to top up my holding earlier this year when the price was under £12 but I would have been better waiting a little longer.

      I am thinking the larger cap players have more resilience when market conditions are tough and as BLT are one of the largest global commodity plays things should work out longer term.

      If the dividend holds up then no real problem, just wait. I have had 3 shares reduce their dividend in the past year - Tesco, Centrica and Sainsbury so I do not need another.

      Intersting times...thanks for stopping by and good luck with your portfolio.

      Delete