BHP Billiton Share Trading Update

Submitted by Craig Strzelecki on 23 March, 2007 - 17:05

BHP Billiton (BHP) have a maintained outperform rating and 12-month price target of A$34.19 from share analyst Macquarie Research Equities. The analysts visited BHP Billiton's (50%) Samarco iron-pellet facility. The following is a summary of what they discovered. In addition, BHP Billiton management gave a broad overview of the company's strategy in Brazil while providing an update on progress at the Alumar alumina refinery in the north of the country. In summary, given the improving outlook for the bulk commodities and the turbo-charged boost that nickel is set to deliver, the analyst believes it is increasingly difficult to justify the deep discount that is being applied to forward earnings estimates. While not a key driver of the BHP Billiton investment thesis, it was clear that the Samarco operation is in good hands. Primarily, a robust demand outlook suggests that operating margins of well over 50% can be maintained for the foreseeable future which vindicates the timely decision to expand pelletising capacity to 21.6mtpa. To that end, it appears likely that the 7.5mtpa expansion will be completed both on budget (US$590m equity share) and ahead of schedule (1HCY08) while a rapid ramp-up following commissioning of as little as 1-2 months will lead us to incorporate minor earnings upgrades (less than 1 percent) from FY09. In what could only be described as a particularly bullish tone, management suggested that a resurgence in the direct reduction market would maintain current tightness in the pellet market which, subsequently, was expected to sustain prices at a similar level (in real terms) to those negotiated for 2005. In a further development, BHP Billiton has initiated a broad exploration programme in some of the most productive iron ore country in the world. Clearly, the private port at Samarco is a strategic asset and management will be hopeful that exploration success will provide an avenue to maximise its value. Samarco generates about 1.7percent of forecast divisional EBIT and 2.4 percent of our BHP Billiton valuation. While the business model appears largely unchanged when compared with the analyst's visit of 2004, good progress on the development front is likely to warrant minor upgrades.

BHP Billiton Limited is listed on the Australian Stock Exchange (ASX) under stock code BHP. You can view their investor website here. BHP was listed on the ASX on 13 August, 1885. Charles "Chip" Goodyear is the CEO of BHP Billiton and Don Argus the Chairman. BHP Billiton was created through the Dual Listed Companies (DLC) merger of BHP Limited (now BHP Billiton Limited) and Billiton Plc (now BHP Billiton Plc), which was concluded on 29 June 2001. BHP Billiton Limited and BHP Billiton Plc continue to exist as separate companies, but operate on a combined basis as BHP Billiton. The headquarters of BHP Billiton Limited, and the global headquarters of the combined BHP Billiton Group, are located in Melbourne, Australia. BHP Billiton Plc is located in London, United Kingdom. The company is principally involved in minerals exploration, production and processing (particularly coal, iron ore, copper and manganese ore) and hydrocarbon exploration, production and refining. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade BHP. Check your charts and good luck with your share trading!

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