Like the whole of the mining sector, BHP Billiton (LSE: BLT) (NYSE: BBL.US) has been under pressure from falling demand and dropping metals and minerals prices in recent years — at least partly due to a combination of surplus production and slowing Chinese demand.
That’s pushed the BHP share price down 20% over the past three years, to 1,955p — the FTSE 100 has gained around 13% over the same period. But looking back a bit further, things are actually a bit better — there’s a gain of more than 70% over five years, with the FTSE up a bit less than 80%.
Rebound?
Are we set for a recovery from the recent stagnation? Here’s what 2013 looked like, together with forecasts for the next two years:
| Jun | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2013 | 134p | -31% | 12.6 | 73.7p | +3.6% | 4.1% | 1.8x |
| 2014 | 163p | +22% | 12.1 | 73.5p | -0.3% | 3.7% | 2.2x |
| 2015 | 171p | +4% | 11.6 | 77.9p | +6.0% | 4.0% | 2.2x |
That’s a nice return to earnings growth predicted for for this year, and a forward P/E of 12 combined with well-covered dividends approaching 4% by 2015 looks attractive to me. But do we have any evidence to back it up?
Only last week the firm released results for the half-year to 31 December, revealing a 15% rise in EBIT to $12.4bn with underlying attributable profit up 31% to $7.8bn — and the interim dividend was lifted 3.5% to 59 cents per share.
Cutting costs
At the time, the company said that it was succeeding in its drive to “deliver more from existing infrastructure at a lower unit cost” — although I do have to wonder why companies aren’t always doing that, rather than apparently only when things are tough.
The results followed on from an operational review released in January telling of record production of 108m tonnes of iron or from Western Australia, and a record annualised coal production of 68m tonnes from Queensland. Liquid petroleum production was also up, by 9% to 50 million barrels of oil equivalent over the six months.
Admittedly, that does bring with it some danger — we really don’t want to see more overproduction at a time when commodities prices are still low. But Chinese growth has been stabilizing, Western economies are coming out of recession, and iron ore, coal and oil prices have picked up since the lows of early last year.
Not out of the woods
There are fears that any crunch resulting from China’s booming credit and property markets would hit commodities demand again, but on balance BHPs forecast earnings growth for this year is looking good.