Along with the rest of the mining sector, BHP Billiton (LSE: BLT) (NYSE: BBL.US) has suffered from slowing Chinese demand — which has depressed metals and minerals prices and so hurt the miners’ profits.
But after a 30% fall in earnings per share in 2013, analysts are expecting 2104 to herald a return to growth. Here’s what they’re predicting:
| Jun | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2014 | 155p | +15% | 12.1 | 73.5p | -0.5% | 4.1% | 2.1x |
| 2015 | 168p | +8% | 11.1 | 78.5p | +6.8% | 4.3% | 2.1x |
Bullishness
Those expectations have become a little more bullish of late, with a few brokers lifting their price targets for companies in the mining sector. Investors seem to be taking notice too, as the BHP share price has picked up 8% over the past week or so to 1,896p — although over the past 12 months it is down 15%.
So what evidence is there that 2014 could be the turnaround year?
Record production
In its first-half production report for the six months to December 2013, BHP told us of rising production across most of its outputs. Iron ore was up 19% over the previous year’s first half, with metallurgical coal up 22%, copper up 6%, and aluminium up 8% — only petroleum products and energy coal production fell, and then by only 1% in each case.
That included production records for 10 of the company’s operations, and BHP maintained its full-year guidance for petroleum, copper, iron ore and coal — between them they account for most of BHP’s annual turnover.
More to come
Chief executive Andrew Mackenzie said that “…the December 2013 half year delivered a 10% increase in production and volumes are expected to grow by 16% over the two years to the end of the 2015 financial year“.
Tightening up on capital expenditure is also helping turn those record production figures into growing earnings — BHP has a total of $16.1bn earmarked for capital and exploration expenditure in the current financial year, down from $22bn in the previous year.
Are the shares cheap?
Barring a major slowdown in China, will those growing earnings translate into direct rewards for shareholders?
Well, a forward price to earnings (P/E) ratio of 12.1 for this year, falling to 11.1 a year later, is pretty undemanding — especially compared to the FTSE average of 17 right now. And dividends yielding better than 4% are way above a 3.2% average, so a price appreciation over the next 12 months looks likely to me — rival Rio Tinto looks cheaper on a December 2014 P/E of under 10, although forecast dividend yields are lower at 3.5%.
