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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.


BHP revisited


BHP Billiton (BLT:LSE)  or for US investors BHP ADRS ( BHP:NYSE)
The recent 5% drop in this miners share price has presented us with a good buying opportunity.
BHP Billiton has been a long term holding in our portfolios and is the perfect  blue chip "core" holding.

BHP Billiton is the result of a 2001 merger between Australia's BHP Ltd  and the U.K.'s Billiton PLC
BHP is a well managed global resource leader with a balanced portfolio of world class, long life assets and a full suite of conventional energy products. BHP is the  world's largest diversified resources company and has many prime assets well located to service Asia. Low cost operations and a strong balance sheet are key to its success. Most revenue comes from the relative safe havens of Australia & New Zealand, North America and Europe. Production of major commodities including petroleum, alumina, copper, gold, iron ore, coking coal, energy coal, nickel, and diamonds make up BHP's bread and butter. The company is well diversifiied from a sovereign and commodity risk perspective.

BHP is a core resource investment for any conservative portfolio. The recent pull back in the stock price has created an opportunity to pick up this blue chip at a reasonable price.

Unexpectedly, BHP reported weaker than expected 4th Quarter 09 sales volumes. This was due mainly to softer demand, operational outages, bad weather and output curtailments. 4th Quarter 09 iron ore volumes fell 8%, well below expectations, due to tie-in activities for the Rapid Growth Project (RGP) 4 and safety initiatives. Energy coal and copper were also conspicuously hard hit. Coal production volumes rose 16% but sales volumes were flat due to weak US and Hunter Valley shipments.
Copper production rose 9% but again volumes were relatively flat, Olympic Dam and Antamina key offenders. Oil and gas was a bright spot.

These results are already factored into BHP's share price. We see this as an opportunity to accumulate the shares whilst their price is depressed. At end of FY09, BHP had 235kt of outstanding copper sales valued at US$2.24/lb. The spot price for copper is now over US$2.40/lb and we believe this will provide a favourable earnings kicker for 1st Quarter 2010.

Anyone wanting a core, long term conservative holding for their portfolio should consider BHP.
The American depositary receipts ( BHP:NYSE) have rallied strongly since last November's lows. But, there is still plenty of upside in the longer term. The share price is still well below its high of 2008.
The ADRs have outperformed leading peers, spurred on by a strong balance sheet and profitability. BHP also pays a handy, secure dividend of 2.5%  We see BHP as a good long term holding for any conservative investor.

Buy BHP Billiton (BLT:LSE) up to 1700p or for US investors Buy BHP ADRS ( BHP:NYSE) up to $68


Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.