Is Top-Scoring FTSE 100 Share BHP Billiton Plc Still A Buy?

Does BHP Billiton plc (LON: BLT) still make the grade as a top-scoring investment opportunity?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

During 2013, I’ve looked at most shares in the FTSE 100 and graded them against these five quality and value indicators:

  • Dividend cover
  • Borrowings
  • Growth
  • Price to earnings
  • Outlook

Some companies scored highly against the “business quality” indicators of level of borrowings, earnings growth record, and outlook. Other shares scored highly against the “value” indicators of dividend cover and price-to-earnings ratio (P/E).

Quality and value in harmony

However, the most promising investment opportunities scored well on both business quality and value indicators.

In this mini-series, I’m revisiting some of the highest-scoring shares to look at events since the original article and to assess the quality of the investment opportunity now. Some of these high-scoring firms could be investment winners for 2014 and beyond so, today, I’m revisiting diversified resources company BHP Billiton (LSE: BLT) (NYSE: BBL.US), which scored 17 out of 25 in March. 

A tough year

In May, long-serving CEO Marius Kloppers stepped down to make way for internally promoted Andrew Mackenzie. The firm has done well under Mr Kloppers, but, thanks to falling commodity prices, 2013 was financially grim despite sound operational progress.

The firm’s trading year, which ended in June, saw revenue down 9% compared to the same time last year, cash flow down 25% and earning per share down 31%. In March, I scored Billiton three out of five for historic growth, but score it only two now.

Weaker earnings have knocked the dividend-cover score too. Based on historic information, earnings covered the dividend almost three times in March; now the cover from earnings is down to around 1.9 times, prompting me to reduce my score from four to three out of five.

Continuing growth in production

Despite a weak year’s trading, recent financial performance is encouraging. The firm increased production by 11% during its first quarter to September, which looks set to help Billiton achieve the 15%  growth in earnings that city forecasters are expecting  for year ending June 2014.

Net debt is around 1.5 times operating profit, so I’m keeping my score at four out of five for that. A forward P/E of around 12 sits well against earnings growth and yield expectations, leaving my four out of five score unchanged. However, good recent trading and an optimistic outlook inclines me to raise the outlook-score from two to four out of five so, overall, I score Billiton 17 out of 25 now, the same as in March, although the composition of that score is different.

What now?

The share-price performance of commodity companies like BHP Billiton is hard to predict. Volatile commodity prices and P/E compression can offset good performance in production as we move through general economic cycles. Since March, Billiton’s share-price has advanced about 3% and the forward dividend yield is running at around 3.9%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Kevin does not own shares in BHP Billiton.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »