BHP Billiton demerger share price drop: Worth digging past the disappointment – Bottom Line
Plans for a leaner, meaner and more profitable mining giant drew little love from investors yesterday. It was easy to see why – but that doesn’t mean the prospects for a slimmed-down BHP Billiton aren’t shiny.
The air of disappointment that saw BHP’s shares fall nearly five per cent over the day was down largely to dashed hopes that the widely anticipated demerger would include a share buyback.
That lack of a lucrative buyback wasn’t helped by the discovery that BHP’s spin-off firm (for now just imaginatively titled NewCo) will be listed in Australia but not in London.
But for all the things that weren’t in the announcement, there are opportunities in BHP’s new structure. Moderation in Chinese demand and a sluggish return to growth in developed markets mean it makes perfect sense for BHP to switch course from wide diversification in a swath of booming commodities to concentrate on the disciplined operation of a few cash cows. The miner sees $3.5bn (£2.1bn) in productivity gains by the end of the 2017 financial year. Its more focused investments are seeking an average rate of return above 20 per cent.
BHP’s full-year progressive base dividend just saw an increase of four per cent. That came with a commitment to boost or at least maintain the dividend per share at every six monthly payment following the new demerger. If you were hoping for a buyback yesterday, that may be cold comfort. But it doesn’t make it a wooden nickel.