Billiton down after disappointing investors
BHP Billiton’s share price fell 5.45% to R347.56 yesterday after it disappointed investors hoping for a share buyback programme.
Instead, it announced plans to focus on four minerals that generated 96% of its underlying core profit in its 2014 financial year results, released yesterday. The rest of its businesses are to be spun off into a new company dubbed “Spinco” by some analysts.
CEO Andrew Mackenzie said the widely expected move to simplify BHP around the “four pillars” of iron ore, copper, coal and petroleum — with potash a potential fifth pillar — would spur cash flow growth and boost returns.
BHP confirmed the spin-off as it reported an 8% rise in second-half underlying attributable profit to $5.69bn, due to higher output volume and cost cuts. The figure was below a consensus analyst forecast of $5.94bn, according to Thomson Reuters Starmine’s SmartEstimate.
The company said it had cut costs in the 2014 financial year by $2.9bn and expected to achieve a further $3.5bn over the next three years.
Some analysts and investors saw the fall in BHP shares yesterday as an overreaction.
“Some people may be disappointed because nothing was announced on a special dividend or buyback,” said Albert Minassian, an analyst with Investec in London.
“But if you already have big news about a spin-off, there is no point announcing the two together. You keep something for the next time. The money is still there,” he said.
BHP had been targeting net debt of about $25bn before it would consider returning capital to shareholders. But on reaching that goal it said it would only go ahead when it could return capital in a predictable and sustainable way.
“We are planning ahead prudently but we will not be excessively conservative. We will continue to look at ways of shifting excess cash in a timely way to our shareholders,” Mr Mackenzie told reporters.
BHP Billiton was formed in 2001 from the merger of London-based Billiton with Australia’s BHP, fusing two of the world’s top producers of iron ore, aluminium, coal, copper, nickel and oil.
The company is still listed in Australia and the UK. “NewCo” will be headquartered in Perth and listed in Australia, with a secondary listing in SA. Shareholders in BHP Billiton Ltd and BHP Billiton Plc would receive shares in the new company on a prorata basis.
Some holders of BHP shares in London had hoped the company would offer options such as a cash payment or buyback for those who cannot or do not want stakes in foreign-listed firms. But BHP said all shareholders would get equal treatment. This raised concern that funds with no mandate to hold shares in companies outside the UK might sell NewCo shares immediately and put pressure on the price.
“We haven’t made a decision yet on what to do with the spun-off company. We will make it when we have more detail available, but some others may be forced to sell,” said Dimitri Willems, a senior portfolio manager at Kempen Capital Management, based in the Netherlands.
He said Kempen would look at the new company’s longer-term outlook when deciding whether to keep its shares and was positive about the spin-off overall.