established: 2001 by merger of BHP (est. 1885) and Billiton (est. 1860), ASX code: BHP, homepage: www.bhpbilliton.com

Overview
BHP Billiton is one of the world’s largest resources and commodities giants operating across 25 countries and employing in excess of thirty thousand people. It is a market leader or major player in number of commodity markets such as uranium, coal, copper, manganese, iron ore and many more.

Analysis of 2007 financial results:

• Market Cap: Depending on the daily stock price of this company the total market capitalization is around $250 billion over 5,783 million shares on issue
• Shareholders Equity: $34.96billion making the stock’s book value approx. $6.04 per share (11.3% growth on FY2006)
• Earnings per share: $2.73 making the average EPS growth in last 3 years about 20%
• Return on Equity: 45.2%, averaging around 40.1%pa in last 3 years
• Balance Sheet: Working capital of $987.4 million versus total debt of $13.8 billion

Sharemaket’s valuation:
Average BHP’s Price to Earnings ratio of 15 suggests the share price around $41 ($2.73 EPS x 15 P/E)

GROWTH STOCK:

• Conservative forecast of average EPS growth in next 10 years: 13%
• Share price in 10 years time: about $139 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
• Total shareholders return in 10 years times: $150 (share price of $139 plus $11 of the 10 years worth of dividends if the current payout ratio of 20% persists)
• Rate of Return in next 10 years based on beginning of November 2007 price of $45 per share: 12.8%pa

Pros and cons:
+++ Established market leader in large number of profitable markets
+++ Extraordinary ROE and EPS growth not only in currently prevailing booming market conditions, but also if averaged long term
+++ Reasonably strong balance sheet (entire debt could be paid off by one year’s profits if necessary)
— Stability in earnings could be somehow affected by high exposure to weak US currency

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This entry was posted on Thursday, November 8th, 2007 at 3:59 pm and is filed under Australian stock. You can follow any responses to this entry through the RSS feed. You can leave a response, or trackback from your own site.