Never mind profits, so long as you can borrow to pay yield you’re awesome, from Morgan Stanley:
Faster cost-out encouraging and here to stay.
Further savings are on the way when it spins off South32; we estimate US$0.5-1bn. Despite savings, BHPB’s FCF still does not cover its dividend on spot. Further capex cuts from the guided levels of US$12.6bn in FY15 and US$10.8bn in FY16 (ex South32) are possible, but will be increasingly at the expense of future growth. The spin-off of South32 will reduce BHPB’s FCF, as the asset generated US$0.9bn annualised FCF in 1HFY15. In addition, we see downside risk to EBIT and cash flows from iron ore. That said, BHP’s balance sheet remains solid – net debt/EBITDA 1.5x and gearing of 25% for FY16, we estimate – which should allow it to the dividend in the medium term in our view.
It’ll have to borrow a lot more yet. Look at that value!
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
