BHP - BHP Group

ducati916 · 4 January 2007

Ken

dont tell me 30 years time BHP will be in the $30 mark....
those looking for a good cheap buck, buy yourself some anything with Uranium in its name...
BHP = long term stability in my eyes..

Thirty years is quite a holding period. If BHP consistently grows the dividend payout in nominal terms, inflation is benign, then why not.

Just look for anything that ends in dotcom, and you'll retire a millionaire.

Stability of what exactly?
Share price?
Revenues?

Well I understand that you do not expect a stable share price.
Revenues are based upon the supply and selling of commodities, notoriously volatile, cyclical, therefore about as far from stable as you can get.

As commodities are hot at the moment, this represents a very poor period in which to ENTER the asset class. If you've been here [commodities] for a while, then you have already earned large profits, and may be looking to lighten your positions.

jog on
d998

ducati916 · 4 January 2007

spitrader1 said:
I think the market, has got BHP horribly wrong. The theory that "its run so far it cant keep going does not hold water. The same people who said that are still short the index at 5200. As don argus said (and you would think he would know a thing or two about banking systems), the china story has not even begun yet. Only when a proper banking system is implemented in china and the avg person in china is taught to consume, will we see the real power of china. BHP is seeing on average 80,000 new people a month wanting infastructure in china, and this will only grow.

The company’s project development and expansion plans exceed US$9.8B over a five-year period. The room for expansion, and caqpital used at its full ability is too large to ignore. People that are saying that BHP has seen its best days and is looking "sick" will be the people that are gagging and looking to buy the stock 30.00 plus. The easy money may be over, but the lower BHP goes, the more i back the truck up.

The China story has been underway for 20+yrs already. That it has now appeared within the public domain, and everybody + the shoeshine boy quotes the inevitibility of China, starts to make you wonder just how valid the great unwashed opinion actually is.

Taking Banking as your example, we have been here before.
Japan, mid to late seventies, through 1989, and then disaster. China uncannily mirrors the Japanese story, but with far greater inherent instabilites.
The significant difference is one of government policy and regulation. Are you willing to place your bet on being able to analyse future government policy?

BHP is priced for perfection.
Any deviation from this paid for future, and BHP holders will have interesting decisions to make.

On the daily swings & roundabouts, currently not a happy place.

Warren Buffet II · 4 January 2007

ducati916 said:
Ken

Thirty years is quite a holding period. If BHP consistently grows the dividend payout in nominal terms, inflation is benign, then why not.

Just look for anything that ends in dotcom, and you'll retire a millionaire.

Stability of what exactly?
Share price?
Revenues?

Well I understand that you do not expect a stable share price.
Revenues are based upon the supply and selling of commodities, notoriously volatile, cyclical, therefore about as far from stable as you can get.

As commodities are hot at the moment, this represents a very poor period in which to ENTER the asset class. If you've been here [commodities] for a while, then you have already earned large profits, and may be looking to lighten your positions.

jog on
d998

I agree with you ducati916. Entering these type of asset class at the moment is, based on probabilities the worst time to do it. People forget history and think that because the commodities have been doing good in the last 4 years it will keep like that in the future, commodity inventories in the market are showing that, you know all the ChinaIndiawhatever talk are not consuming all the stuff produced and the prices will keep going down until an average trend, 6 months of rising copper inventories is not a good sign.

So, BHP 24.5 today?

WBII

Fab · 4 January 2007

Warren Buffet II said:
I agree with you ducati916. Entering these type of asset class at the moment is, based on probabilities the worst time to do it. People forget history and think that because the commodities have been doing good in the last 4 years it will keep like that in the future, commodity inventories in the market are showing that, you know all the ChinaIndiawhatever talk are not consuming all the stuff produced and the prices will keep going down until an average trend, 6 months of rising copper inventories is not a good sign.

So, BHP 24.5 today?

WBII

I am wondering where the bottom is for this one. I thought 24.5 was looking good to bounce back on it tomorrow. I have to say I bought some more today as I can't believe that BHP is so cheap at the moment

brendan87 · 4 January 2007

Hi everyone.
This is my first post Although I've watched the forums on this sight for quite a while. Briefly, I'm 19 y/o studying Commerce/Economics in Brisbane. Dabbled in the market from the age of 12 (with my pocket money). I've got a commsec ML and just starting to utilise it for some s-t plays to spice things up a bit. With the recent run up I've unlocked a bit of 'play money'. So I took a small position in BHP just before the close at $24.42. Looks like the support is there just around 24.50 or slightly below. The next support is $24.00 which would be a nice tight stop for anyone getting in this afternoon. Fundamentally the stock looks good - very cheap with a PE of 9, the funds/brokers still love it and commodities unlikely to fall through the floor (at least in 07). I wonder if the stock is appealing to value investors, surely? Looking back when BHP was briefly under $25 in June it pulled back 10% within a week and almost 20% by the end of the month. Same in late September, with a small rally to $26 and then on to $28 by the end of October. Anyway, lets see how things go tomorrow and I'm interested to hear anyone else's thoughts on BHP as a s-t play or a longer term hold. Cheers,
Brendan

reece55 · 4 January 2007

Well, what a day for commodity exposed stocks. BHP is looking very sick to me indeed. Brokers retain their bias to the stock, but the chart says otherwise. The depth today was quite incredible - I saw 300,000 shares taken out in one go at midday at 24.50. Market depth illustrates the bearish view on the stock. Copper is now in the middle of no where, with support a very long way down from the price we are currently at. And BHP is edging very close to support at ~23.50. IMO now is not the time to be going long in this stock - yes, it has a low PE, etc. Just remember though that this is a company that has come from $14 in Jan 05 to a peak of above $32 back in May. Stay away in my view and below ~$23.50 short.

Cheers
Reece

ducati916 · 4 January 2007

I wonder if the stock is appealing to value investors,

No, far too expensive.

jog on
d998

markrmau · 4 January 2007

brendan87 said:
interested to hear anyone else's thoughts on BHP

I don't know what tomorrow will bring. Nobody does. It is basically taking a punt on copper prices.

http://www.marketwatch.com/tools/quotes/intchart.asp?symb=HG07H&sid=1951684&freq=1&time=3mo

Now I do think that what we are seeing is 'technical selling' of copper - where people are selling purely because the price has dropped below certain lines on a chart.

Of course this is silly, but if enough people believe it, it becomes true.

I think that copper is under pressure because buyers are on the sidelines 1. over end of year break, 2. to see how low it will go before buying. I do expect a bounce, but I may be wrong.

I think that copper will be down tonight (and hence bhp drop tomorrow) but may be completely wrong.

The most important thing for you is to ignore brokers in the short term, and understand you are making a proxy investment in the metals and oil markets.

haemitite · 4 January 2007

markrmau said:
I don't know what tomorrow will bring. Nobody does. It is basically taking a punt on copper prices.

Its pretty crazy if people whacked BHP 4% based on the copper price decline, no one expects the base metals bubble to last - the future markets certainly don't

Smart investors would have noted the significane of the early iron ore price rise

Not so smart investors would claim that LIFO policy impacts cashflow and therefore BHP is expensive

2020hindsight · 4 January 2007

http://www.abc.net.au/news/newsitems/200701/s1821631.htm abc seem to think that things are heading south

wayneL · 4 January 2007

2020hindsight said:
http://www.abc.net.au/news/newsitems/200701/s1821631.htm abc seem to think that things are heading south

Copper certainly is, in an awful hurry too.

Now $2.57 on the march futs

Darkblue66 · 4 January 2007

hmm I recall a short time ago when WPL was down, people were 'writing it off', however as we now know that didn't happen.

I think a similar situation, BHP is down, however the markets are way up, and copper will get to a price where buyer won't help but buy it.

Quite likely when fund managers return to work next week, they will be all over it, a possibility.

wayneL · 4 January 2007

Darkblue66 said:
hmm I recall a short time ago when WPL was down, people were 'writing it off', however as we now know that didn't happen.

I think a similar situation, BHP is down, however the markets are way up, and copper will get to a price where buyer won't help but buy it.

Quite likely when fund managers return to work next week, they will be all over it, a possibility.

Hedge funds are selling copper. Long only funds won't be buying until it gets to low 2's imo

ducati916 · 4 January 2007

haemitite said:
Its pretty crazy if people whacked BHP 4% based on the copper price decline, no one expects the base metals bubble to last - the future markets certainly don't

Smart investors would have noted the significane of the early iron ore price rise

Not so smart investors would claim that LIFO policy impacts cashflow and therefore BHP is expensive

And the last in regards to LIFO & FIFO.
BHP is a FIFO producer, and FIFO overstates profits in time of rising prices. Currently we have [or have had] rising prices [commodity bull market from "99] and BHP has ridden the crest of that wave on massively leveraged Net Profit [hence the low P/E] due to HIGH EARNINGS not a low security price. Cash flow is strangely, directly correlated to cash-flow, and FIFO increases cash-flow when prices are rising, whereas, LIFO understates Net Profit & cash-flow in a rising price environment

Now, prices [both prices of unit costs, and selling prices] are rising slowly and steadily, like our current commodity bull market thus;

If we take our Last In First Out as our accounting standard, this will most closely on an accrural basis represent replacement cost thus will understate Net Profits.

If we take our First In First Out as our accounting standard, we shall inflate our Net Profits [leverage them] as, we shall cost our inventory at the lower production cost, but sell the inventory at the high spot prices, thus providing on an accrural basis misleading [but not illegal] financial statements.

So, the NPV of the cash-flow is materially distorted, giving excessively high valuations, and thus drawing in the amateurs at, or fairly near the top of a bull market.

Therefore as spot prices head south, so will Revenues & Cash-flows, magnified by the same leverage that enhanced them on the way up, so it will magnify them on the way down.

With a pending surplus in steel, we'll see how long iron ore holds up, and Nickel.

jog on
d998

Gundini · 4 January 2007

Yes well, tripple whammy with Oil down $2.50 (Unstastainable for the oil rich nations IMO, $60 is their staple), Copper off (But China growth story still in vogue), and Nickel mine closure ( Temp due to cyclone in WA).

Not happy Jan, but massive support @ $24.08. A break bellow this level would be a major concern for mine. I'm happy to back up the truck, but a very painfull day. The old "Dog chasing its Tale" theory... But hey, the shakeout will pale when the stock hits $30+.... Just hope I live that long

2020hindsight · 4 January 2007

Gundini said:
But hey, the shakeout will pale when the stock hits $30+.... Just hope I live that long

wouldnt it be great if we all had foresight - for example that BHP would hit $50 in the next 2 years ? (serious long term speculation here - no ramping implied)
sorry joe - this is speculative and baseless - but - gee whiz the price of oil can only go up surely It's gonna get to the point where we're gonna run out of caramelised palm trees and dinasaurs etc.

dhukka · 4 January 2007

brendan87 said:
Fundamentally the stock looks good - very cheap with a PE of 9, the funds/brokers still love it and commodities unlikely to fall through the floor (at least in 07). I wonder if the stock is appealing to value investors,

At over 4x NTA I don't think value investors will be rushing in to buy anytime soon. A FY07 prospective PE of 9 is undemanding however on what assumptions are this year's earnings based? It would be interesting to see a sensitivity analysis of earnings to changes in commodity prices.

Whilst BHP has enjoyed the benefits of high commodity prices in recent years there has also been a notable increase in production costs. Just recently BHP announced the projected costs for the Ravensthorpe Nickel project had tripled from original estimates. Ducati pointed out the double whammy effect of rising prodction costs and falling commodity prices on another thread that could really cut into margins (which are now at historical highs). Too much downside risk here for value investors I would think.

Gundini · 4 January 2007

2020hindsight said:
wouldnt it be great if we all had foresight - for example that BHP would hit $50 in the next 2 years ? (serious long term speculation here - no ramping implied)
sorry joe - this is speculative and baseless - but - gee whiz the price of oil can only go up surely It's gonna get to the point where we're gonna run out of caramelised palm trees and dinasaurs etc.

Actually, 2020, you have a good point. BTW, my appologies if the ramping comment was directed at me, but it was not intended, but I do agree it is baseless for the following math:

Earnings & Dividends Forecast (cents per share)
Curr 2007 2008 2009
EPS 225.4 288.4 293.0 262.5

Current P/E 9.45

By simply multiplying the forcast EPS by the current P/E, the following share prices can be forcasted without ramping:

Current: $21.30
2007 : $27.25
2008 : $27.68
2009 : $24.81

These figures actually shocked me, and I thank you for bringing to my attention 2020, but it seems that if BHP doesn't grow faster than the current P/E, or EPS remains consistant with predictions, this stock may not hit $30, heaven forbid $50 in the next 3 years!

This is of course understanding that these figures are only forcasted projections by the major broking houses of the world, and can change over time. Also, the Uranium factor is probably not factored into the growth projections due to it not coming online until from memory 2009? And obviously the Chindia growth factor is the wildcard.

Cheers

Fab · 4 January 2007

dhukka said:
At over 4x NTA I don't think value investors will be rushing in to buy anytime soon. A FY07 prospective PE of 9 is undemanding however on what assumptions are this year's earnings based? It would be interesting to see a sensitivity analysis of earnings to changes in commodity prices.

Whilst BHP has enjoyed the benefits of high commodity prices in recent years there has also been a notable increase in production costs. Just recently BHP announced the projected costs for the Ravensthorpe Nickel project had tripled from original estimates. Ducati pointed out the double whammy effect of rising prodction costs and falling commodity prices on another thread that could really cut into margins (which are now at historical highs). Too much downside risk here for value investors I would think.

This one is a bargain at this level. That is why I bought at 24.50. People have a very short memory I believe. P/E is low, earnings I believe were the best reported on the asx and they have been doing a share buy back also RSI is low. All these reasons push me to buy more and I am very happy about it. I believe it might keep going down a little bit more but in 6 months it should be much higher

Warren Buffet II · 4 January 2007

Just got this from the London Market - FTSE

BHP Billiton (NYSE:BHP) led the fallers, down 40-1/2 pence at 892-1/2, further hit by news that a storm off Australia's southwest coast has forced the company to close nickel operations in the area.

Peers Rio Tinto lost 94 at 2,559, Vedanta was off 51 at 1,107, Xstrata fell 130 at 2,287, Antofagasta was down 22 at 466 and Kazakhmys eased 49 at 1,038.

Copper down at the moment 3%

So, I guess tomorrow BHP could break the $24 mark

WBII

BHP - BHP Group

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