Full-year results from BHP Billiton (LSE: BLT) this morning coincided with a market rebound, sending the big miner’s shares up by around 8% to a late-morning high of 1,047p.
Adjusted earnings per share fell by 52% to 120.7 cents, missing the consensus forecast of 136 cents per share. However, BHP maintained its progressive dividend policy, lifting the payout by 2% to 124 cents per share.
While this does leave BHP’s dividend uncovered by earnings, I’m not too concerned in the short term. BHP announced further cuts to capital expenditure today and said that cost savings to date of $4.1bn were ahead of target, and that further gains were expected in 2016.
Despite falling commodity prices, BHP managed to reduce net debt by $1.4bn to $24.4bn last year, and generated an operating profit of $8.7bn from continuing operations. This gives the firm an impressive operating margin of 19.9%.
BHP shares yield about 7.5% at the time of writing. In my view, now is an excellent chance to average down an existing holding or start a new position.
Antofagasta
Shares in copper miner Antofagasta (LSE: ANTO) are up by 6% at the time of writing, although they remain down by 25% so far this year.
Today’s half-year results suggest to me that like BHP, Antofagasta is reaping the benefits of having a strong balance sheet and a focus on low-cost operations.
Revenue was down by 31% to $1.8bn, while earnings per share from continuing operations fell by 72% to 8.8 cents. Cash flow from operations was also down by 31% and fell to $807.7m, but this was enough to cover capital expenditure of $595.9m.
Antofagasta has minimal debt and its financial position was strengthened by the recent sale of its water division for $1,030m. The firm plans to use this cash to acquire a 50% stake in the Zaldivar copper mine in Chile from Barrick Corporation.
Antofagasta says that Zaldivar will immediately add to the firm’s earnings and cash flow, and I suspect that this cash purchase will prove to be a good buy over the next 5-10 years. I’d consider Antofagasta as a long-term buy, at current prices.
Gulf Marine Services
Mid-cap jack-up rig operator Gulf Marines Services (LSE: GMS) is a relative newcomer to the UK market, having only listed in March 2014. However, the firm is growing fast and currently has a temptingly cheap valuation.
Today’s interims show earnings per share of 9.95 cents for the first half of the year. The firm says that it expects to hit full-year expectations, giving Gulf Marine shares on a 2015 forecast P/E of just 6.1, with a prospective yield of 1.8%.
Is this too good to be true, or is Gulf an oil sector bargain caught up in the current sell-off? I’m not sure. The firm’s operating profit of $48m was almost completely converted into operating cash flow of $46m, which is good. However, Gulf’s operating margin of 48.7% seems a little too good, in my view.
One risk is that the firm is borrowing heavily to fund its fleet growth. Net debt rose by $100m to $374m during the first half, leaving net gearing close to 100%.
I’d want to do a little more research before investing in Gulf Marine Services, but it certainly seems worth a closer look.
