BHP Billiton – shares not capital on offer from demerger – but The Share Centre still says ‘Buy’

19th August 2014

Mining giant BHP Billiton plans to spin-off some of its assets into a new (£8.4bn) metals and mining company specialising in aluminium, coal, manganese, nickel, and silver. BHP Billiton will focus on its five core commodities of iron ore, copper, coal, petroleum and potash.

The world’s biggest mining firm also posted a rise in annual profits of 23% to $14bn though missing analysts’ forecasts as the BBC reports this morning.

Helal Miah, investment research analyst at The Share Centre, explains what they mean for investors.

“BHP Billiton’s results this morning should on the whole please investors. Despite the turbulent conditions in certain commodity markets the company managed to deliver a 9% increase in productivity. Revenues for the full year were up 2% and net profits were up 23%, helped by efficiency gains and reduced capital investment. Going forward, BHP Billiton expects another $3.5bn worth of efficiency gains until 2017.

However, Miah notes disappointment that management confirmed the demerger will not result in a return of capital to shareholders. Investors will instead receive a pro-rata distribution of shares in the subsidiary company and retain their current shareholding in BHP Billiton.

“We continue to recommend BHP Billiton as a ‘buy’ for medium risk investors. Despite the demerger plans the company will remain one of the most diversified large cap miners. Capital efficiency after the demerger should improve and management are targeting to increase the dividend pay-out ratio from the current 48%.”

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