Results from BHP Billiton are the main feature today. They are actually quite good despite all the gloom surrounding commodity prices recently, with underlying operating profits up by around 15%. The dividend was increased by 3.5% and they currently yield close to 4%, 2 times covered by earnings which put them on a 12x earnings multiple.
Consequently these had started to feature in my value and yield screening and come up on contrarian three year under performance screens. Apart from the yield it was the breadth of the portfolio of assets here and the industry noises about reducing levels of capital expenditure and focussing on returns that got me interested recently. Early evidence of the success of this is demonstrated in these numbers with EBIT margins up 9% to 38% and return on capital up to 22%. Allied to this there was also a 65% increase in net operating cash flow and a 25% reduction in cash outflows from investing activities which led to a US$7.8 billion increase in free cash flow, which should also help to underpin dividend payments going forward. Debt levels also appear manageable and are likely to be coming down given the reduced capital expenditure commitments. You can download a presentation covering the results and their capital discipline and production growth outlook.
Thus having had very little or no exposure to this sector in the last few years I picked some of these up back in January this year at around £18 having top sliced some Vodafone above 230 pence. Pleased to see the results back up the investment case for this one longer term. The other majors in the sector like Rio and Anglo American are also generating interest in some quarters and so it may also be worthy of some further digging around there too?