BHP Billiton (BHP) Poised to Grow on Robust Growth Drivers
On Oct 18, we issued an updated research report on premium basic materials company BHP Billiton Limited BHP.
The degree of business rivalry is high in the global mining market and dominated by large companies like Vale S.A. VALE, Rio Tinto plc RIO and South32 Limited SOUHY. Notably, we notice that competitive pressure in the industry has been mounting due to limited number of new entrants (on account of huge start-up costs involved in such businesses).
However, amid such adverse conditions, BHP Billiton has been steadily boosting its competency on the back of improved mining yield. In the first-quarter fiscal 2018 production results (released Oct 18, 2017), the company’s aggregate copper productivity improved 14% year over year, on the back of sturdy productivity of Escondida, Olympic Dam and Antamina copper mines. Notably, the company also reaffirmed its iron-core productivity within the range of 239-243 Mt (estimating a year-over-year upside of 3-5%) for fiscal 2018.
BHP Billiton intends to drive its near-term operational performance on the back of increased safety measures, greater capital discipline and higher productivity.
The company also finances numerous growth projects and boosts shareholders’ returns on the back of elevated free cash-flow generation. The company has been steadily enhancing its liquidity on the back of more efficient operations and increasing productivity gains.
Over the past five years, BHP Billiton accumulated productivity gains worth $12 billion. Notably, another $2-billion gain is estimated to be realized by the end of fiscal 2019.
We also notice that the company is reducing capital and exploration expenses by exercising flexibility of Onshore plans in the United States and focusing on more capital efficient projects. For instance, in fiscal 2017, exploration and capital expenses plunged 32% year over year to $5.2 billion.
In addition, BHP Billiton reported robust earnings before interest, tax, depreciation and amortization (EBITDA) margin and earnings in fiscal 2017. The company noted that the improvement was primarily driven by escalating prices of major core metals and operating cash-cost improvements. Continuation of this upbeat trend will likely bolster the bottom-line performance of BHP Billiton in the upcoming quarters.
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