BHP Billiton Ltd (BHP), with a market cap of $103.46B, is a global, diversified resources company engaged in discovering, acquiring, developing, and marketing natural resources, producing major commodities such as aluminum, copper, energy coal, iron ore, and manganese, among others. Although it may still be too early to invest into industrial metals & minerals, BHP continues to cut costs and production improvement had been seen.
On April 17, 2013, BHP reported improved quarterly year-over-year production data, ended on March, for most of its segments. Despite the declining yield on petroleum, lead, gold, silver, diamonds and energy coal, the production for aluminum, nickel, copper, zinc, iron, manganese alloy and metallurgical coal had all increased compared to the same period a year ago. BHP had also closed its diamond business by selling its stake in the EKATI mine on April 10 for $533M. Similar to BHP, another major mining giant, Rio Tinto Plc (RIO) also posted an increase in most of its products for the quarter.
BHP's new CEO Andrew Mackenzie is determined to cut costs and increase productivity, starting with his much lowered salary. With the new organization structure, petroleum and potash, copper, iron ore, coal, aluminum manganese and nickel units will report directly to new CEO.
Analysts' Calls and Estimates
On April 22, 2013, HSBC upgraded BHP from neutral to overweight. Analysts currently have a mean target price of $63.83 for BHP, which is below the current price of $64.43 as of April 22, 2013. Analysts, on average, are estimating an EPS of $3.78 with revenue of $68.64B, which is 5% lower than 2012. However, for 2014, analysts are projecting an EPS of $4.16 with revenue of $79.45B, which is 15.70% higher than 2013.
Fundamentally, BHP's key stats will be compared to its peers in the industry of industrial metals and minerals, including Rio Tinto PLC and Vale SA (VALE) to see where it stands.
Closing Price (April 22, 2013)
Revenue Growth (3 Year Average)
Operating Margin, %, ttm
Net Margin, %, ttm
14.3 (S&P 500's average)
Projected Dividend Yield
Source: Google Finance and Morningstar
Compared to RIO and VALE, BHP has the highest margins and strongest ROE and ROA with a healthier debt/equity ratio of 0.4. From the valuation perspective, BHP is undervalued with a P/E of 11.1 as compared to the industry average of 93.5. VALE, on the other hand, has the highest revenue growth average in the past 3 years and offers the highest dividend yield.
Technically, BHP is on a long-term down trend since mid-February, 2013. BHP is currently trading below its down trend supporting line, as well as the 50-day MA and 200-day MA, as seen from the chart below.
Both RIO and VALE are on a long-term down trend since early 2013 as seen from the charts below.
How to Invest
While it is still too early to bet for stronger global demand, valuation had fallen considerably for BHP as well as RIO and VALE. However, in the near-term, more price volatility is expected and more patience is required for investors. Long-term investors should continue to monitor the production data and wait for a safer entry point when the price starts to stabilize. Investors can also review the following ETFs, which have exposures to BHP:
- BLDRS Asia 50 ADR Index Fund (ADRA), 10.16% weighting
- BLDRS Developed Markets 100 ADR Index (ADRD), 3.21% weighting
Note: Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.