A- A A+

BHP and its dividends

Staff writer |  30 March 2015  |  Investing

BHPBHP-Billiton, which is a global resources giant, is probably fully priced, according to some analysts. But with a predicted dividend yield (not fully franked) of about 6 per cent, and a low price earnings ratio of 11 times, it may be worth looking at. Here is Morgan Stanley's take. The broker has a price target of $34:


Commodities price pressure is affecting cash flow. This leaves the dividend of US$1.21/sh (US$6.5bn) uncovered unless BHPB can cut US$2-3bn in capex without affecting volumes. However, the strong balance sheet should allow BHPB to continue paying even an uncovered dividend for several years.

On spot commodity prices, BHPB trades on high earnings multiples vs international peers: 27x P/E and 9.8x EV/EBITDA FY16e, which reflects a market view for rising oil prices and the strong balance sheet.

Operationally, the most challenging business remains US Onshore oil. High grading, cost and capital efficiency, as well as higher recovery rates, are the key drivers. Recently announced capex cuts will not be enough to make the business FCF positive, we estimate. Higher prices are needed.

The spin-off of South32 will not be a big valuation trigger, in our view. It is a trigger for further cost cuts at the parent that could add c.US$0.5-1.0bn to EBITDA; this is in our bull case.

BHPB has medium- to long-term brownfield growth opportunities in copper at Spence Hypogene and Olympic Dam phase 2. These projects are substantially value and FCF accretive in our base case. Unfortunately, production starts early to mid next decade.


Risks to Achieving Price Target

* Project execution: Jansen potash, Escondida growth, Spence hypogene, Olympic Dam.

* US$4bn in cost savings including US$2.6bn reductions in cash costs.

* Reduce capex to maintain balance sheet strength and pay base dividend.



Credit Suisse is also neutral and has the same price target of $34. Here are Morgan's investment metrics:








Source articles

Similar articles from Investing

The flat lining Australian stock market

David James | 3/22/2015

FlatWhy is the Australian stock market going nowhere when world stock markets are rising? The answer is probably the concentration on dividend yield in the domestic market.

Mr Henry does something curious

David James | 3/19/2015

yieldThe former head of the Treasury, Dr Ken Henry, has made a curious investment observation. He has questioned investors focusing on yield.</p,

Property trusts strong

Staff writer | 3/17/2015

StrongProperty trusts are doing well, although there are some concerns in the office market. They may offer diversification options.

Debt and housing crises

 | 12/17/2014

HousingAustralia has had a debt fuelled explosion in housing prices, which has created a generational divide and made the Australian economy, and banks, dependent on the housing market. The lesson of crises, meanwhile, is that they are usually caused by excessive debt.

The timing myth

David James | 12/16/2014

MythMany think that investment is all about doing things at the right time. The long term evidence says otherwise.



Subscribe to the Personal Super Investor weekly email to keep abreast of developments in SMSF law and investment markets. SMSF investors looking to improve investment returns from shares, property, cash or other specialised investments, will find the PSI weekly newsletter an invaluable resource.

Subscribe now »



The contents of this website are of a general nature only and have not been prepared to take into account any particular investor's objectives, financial situation or particular needs. Our content is not intended to be advice and must not be relied upon as such. You should seek independent advice tailored to your specific circumstances prior to making any decisions. Personal Super Investor does not provide financial product advice or recommend any financial products: Where this website or it derived newsletter/electronic publication refers to a particular financial product, whether it be within our editorial or a 3rd party advertising, advertising promotion or advertorial, then you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you should seek professional advice from a financial adviser before making any decision to purchase any financial product referred to on this website. We do not make any representation or warranty that any material on the Personal Super Investor website will be reliable, accurate or complete, nor do we accept any responsibility arising in any way from errors or omissions of our content or any content provided by any advertiser appearing the Personal Super Investor website. We will not be liable for loss resulting from any action or decision by you in reliance on the Material (whether editorial or advertising) on the Personal Super Investor website, nor any interruption, delay in operation or transmission, virus, communications failure, Internet access difficulties, or malfunction in your equipment or software. By using the site you acknowledge that we are not responsible for, and accept no liability in relation to any content contained on the site that you may use, including any other users’ use of the Personal Super Investor website in any circumstance. You use the Personal Super Investor website at your sole risk.