We recently reiterated our Neutral recommendation on BHP Billiton Limited (BHP).
The company is a diversified resource company with operations spanning several continents. Over the longer term, we view the ongoing industrialization in China, the largest iron-ore importer, as well as growth in emerging markets quite positively. Such factors should improve the demand and price of the company’s products.
BHP is primarily engaged in mineral exploration, production and processing, oil and gas exploration and development, and steel production and merchandising. BHP has set a target for its organic growth to reach $80 billion by the end of year 2015.
During the first six months of fiscal 2011, BHP completed one energy coal project and approved the $1,050 million Macedon gas project in Western Australia. Projects under development include 5 petroleum projects with a total budget of $3.5 billion, as well as a $1.9 billion aluminium, a $435 million base metals, a $4.8 billion iron ore and $260 million energy coal project. The company’s cash flow from operations of approximately $12.2 billion is encouraging and likely to support the company’s capital spending plans.
Apart from investing funds for internal growth, the company also remains committed to returning excess capital to shareholders via dividend payments and buybacks. Recently, the company announced a 10% increase in interim dividend rate which now stands at $0.46 per share with corresponding annual rate being $0.92 per share versus $0.87 in the fiscal year 2010.
Moreover, on completion of the company’s $10 billion capital management program by end 2011, the company will have repurchased $22.6 billion, or 15% of the company’s issued capital.
However, near-term results might be affected by the ravages of the recent Australian floods which forced closure of mines and reduced production levels. Cost pressure from tight labor and raw material markets remain a cause of concern. In the first six months of the fiscal year 2011, higher costs reduced underlying EBIT by US$521 million.
The company also faces stiff competition from peers like Alcoa Inc. (AA), Vale S.A. (VALE) and Rio Tinto (RIO). Thus, currently, we maintain our Neutral recommendation on BHP Billiton.
ALCOA INC (AA): Free Stock Analysis Report
BHP BILLITN LTD (BHP): Free Stock Analysis Report
RIO TINTO-ADR (RIO): Free Stock Analysis Report
VALE RIO DO-ADR (VALE): Free Stock Analysis Report
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