Today’s update from BHP Billiton (LSE: BLT) outlines how the company plans to boost its coal business. It intends to do this through making its coal division more competitive, rather than waiting for higher prices to boost profitability. As such, it is focused on reducing costs yet further while also releasing latent capacity.
Wide margin of safety
Certainly, BHP has an excellent track record of delivering improved productivity in its coal business, with the division having recorded $3bn in productivity gains in the last four years. Furthermore, BHP is targeting an additional $600m in productivity gains by the end of the 2017 financial year and this looks set to have a positive impact on its bottom line.
In fact, BHP is expected to increase its earnings by 179% in the next financial year and this puts its shares on a price-to-earnings growth (PEG) ratio of just 0.2. While volatility may be high and BHP remains a risky stock to own, its low valuation indicates that it has a sufficiently wide margin of safety for investors to buy for the long term.
Also reporting today was NWF Group (LSE: NWF), the specialist agricultural and distribution business, which announced that its performance in the year to 31 May was in-line with expectations. Notably, it made progress in terms of strategic development, with three acquisitions performing well following successful integration into NWF.
Although market conditions are challenging, NWF continues to invest for future growth and its cash generation remains strong. This has allowed it to conduct a major capital expenditure programme which could help to boost profitability in the long run.
With NWF expected to increase its earnings by 6% in the current year and its shares trading on a price-to-earnings (P/E) ratio of only 11.4, it seems to offer good value for money. Certainly, its financial performance could disappoint over the medium term, but with a wide margin of safety and a well diversified business NWF has a relatively appealing risk/reward ratio at the present time.
Meanwhile, shares in Futura Medical (LSE: FUM) have soared by 13% today after the release of its AGM statement. In a very positive update, Futura said that it is pleased with the recent progress in the commercialisation of its pipeline.
Clear potential for value generation
The company is preparing for the commercial launch of new products, as well as being in discussions with regulatory authorities regarding manufacturing sites. And with interest being received following Futura’s positive clinical data announced last year, it believes there is clear potential for value generation in this year and beyond.
Of course, Futura remains a relatively high risk play and with it due to remain loss-making in each of the next two years, its shares could fail to maintain today’s strong gains. As such, and while it has a bright long term future, it may only be of interest to less risk averse investors.
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Peter Stephens owns shares of BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.