BSD
Prices are half of the riddle for BHP - volume growth has been and continues to be strong. See slides 18 and 25 of the recent BHP AGM Presentation for examples.
Prices are half the riddle, and currently they are the half that carry a disproportionate weighting in the share price of BHP common. Investors paying current premiums for the common will be sorely disappointed should prices fall in the future, as the leveraged contribution of prices can cut both ways.
AS for debt I will quote directly from Macquarie Equities BHP note dated 25/10/2006 because you wont believe me:
"BHP will generate US$35billion of free cashflow to the end of the decade and will be net debt free by the end of FY2008"
Well that's probably because you keep getting your facts wrong. As regards Macquarie, this is simply a forward prediction, they may be spot on, or horribly amiss, time will tell.
Your unit price analysis is completely useless and a waste of time:
Not at all.
That you do not understand the implications however is quite clear. In fact I'll repost it; it is that good!
Revenues = 15.1% compounded growth [5yrs]
Net Profits = 50.9% compounded growth [5yrs]
Leverage = 6.2% thus the leverage apparent is not due to Capital Structure.
Profit Margins have increased from 22.6% to 31.5%
The analysis highlights the fact that;
*profit margins increased by 8.9%
Profit margins increase by either; price increases, and/or falling cost of production. Cost of production has risen by 12.3% compounded, thus a 15% increase in revenues, less 12.3% in Costs = 2.8% increase in gross margin.
Therefore, the 8.9% net profit margins are produced in one of two ways;
Increasing leverage [reducing the cost of capital]
Or, benefiting from increased prices.
BHP has for it's Capitalization, an insignificant amount of debt, therefore through a process of elimination we can conclude, increasing prices are responsible for the increased margins.
Therefore, should gross margins contract, this will have a leveraged effect upon Net Profits, and they will shrink by the similar multiples as by which they have grown.............what would the effect of falling Net Profits have on the share price? And god forbid, what if falling prices are accompanied by falling unit sales.......then we have the double whammy, falling revenues & falling margins.
The answer of course being that the share price would fall.
Therefore, current buyers at the inflated level today, are paying a steep premium for a speculation that China etc can maintain their current meteoric growth......hmmmmmmm.
If copper falls 10% per annum for the next five years in a row - long futures punters will lose but BHP will beat every analyst in the world and will make investors bucket loads
How naive.
Get some broker research mate. They have teams of sharp guys focussing solely on the analysis of one business.
I am far more intelligent.
An appreciating RMB wont kill China. The Yen has strengthed four-fold against the USD and take a look at their CAD
You seem to forget your previous post, and contradict yourself;
Gold bugs have called for the end of the USD/US Consumer/US borrower etc for as long as I have known what a current account deficit is.
You will find many economists who do not care anymore about CADs. Too many have hung their hat on an assumption that did not prove true for three decades and many have given up worrying.
Remember the effect the Banana Republic comments from PJK had on the AUD in the 90s? Australian foreign debt and CAD is a mess in comparison to those doom filled days, but nobody is callng for the demise of the AUD.
So linking your two arguments just results in nonsense.
An appreciating RMB will damage China.
Because China understands this, they artificially manipulate the RMB to keep the exchange rate low against the US$.
If the RMB were to revalue instantly, inflation would go to the moon and so would interest rates. I dont think any consumer nation is wanting this to happen
Such a shallow analysis, indicitative of the qualitative analysis based on opinion.
The banking system and the bad debt situation is the dodgy system I talk of. The trillion is in the Government coffers - but who do you think bails out banking systems when they implode?
And what effect would that have on Chinese economic growth?
Do you think it would be a positive?
Or a negative?
I would argue that it would have a negative effect on economic growth. That it is already starting to happen, is an early warning that down the road, rather than continued double digit growth in GDP, there lies trouble ahead.
The Chinese will do what they wish with their trillion. What other government manipulates the metals markets for the benefit of their industry?
And, for the sake of playing devils advocate, China has ASX resouce stocks at the top of their "to help" list?
As for demographics - forget the birthrate etc. Keep contemplating the effect of 400million people adding to their per capita production/spending at a multiple of 10.
Just a further example of an embedded bias.
Forget the data, and what that implies.
Don't think, pay some analyst to think for you, and go with their recommendation, after all, by a process of elimination, we can conclude that you believe them to be more intelligent than yourself.
rederob
The value of gold is largely a function of its rarity and (virtual) indestructibility.
The fact that it can look good is just a bonus.
The value of gold, is psychological.
It possesses no intrinsic value.
Don't be too hard on ducati. At least now he cuts and pastes with due acknowledgement. In time he may learn to divine the future from a more balanced appreciation of key drivers of demand. Of course if he reads more of our posts he will get a heads-up!
I always read your posts.
They are of great interest, and highly illustrative of trader sentiment.
jog on
d998