BHP Billiton Limited (ASX: BHP)

BHP Details

Disciplined capital allocation: BHP has a simple, unique portfolio of the very best assets that are diversified acrossattractive commodities. Its strategy of relentlessly pursuing productivity, supported by a moreagile and connected culture, will help BHP to achieve the full potential of its assets while capitalising on strong commodity prices. Moreover, it has built an attractive suite of opportunities that will drive it to further improvement, but as always it will maintain its focus on the allocation of capital with all investments weighed against cash returns to shareholders. It is seen that over past two years, BHP with the help of six key value drivers has reduced unit costs by more than 15 per cent, has accelerated its technology and innovation program, has progressed five high-return, latent capacity projects and sanctioned two major projects in copper and oil. It has also reduced its net debt by over US$10 billion and delivered US$8 billion to shareholders.


ROCE Trend (Source: Company Reports)

BHP replenished its pipeline with new opportunities having a potential to add a further 40 per cent to the value of BHP. The Group is looking forward to target a further US$2 billion in productivity gains by the end of the 2019 financial year and will continue to enhance its pipeline of future options that will be diversified across commodities and timeframes, which have an unrisked value of more than US$15 billion and the potential to deliver average returns of 17 per cent. The Company’s aim to grow long-term shareholder value, backed with the stronger commodity prices, helped it to significantly increase the return on capital employed and delivered a 30 per cent increase in BHP’s base value over the past two years. ROE improved from 5.8 per cent to 6.7 per cent in a span of one year. The stock rose up by 36.87 per cent in one year, and was up by 22.14 per cent in six months. The stock climbed up by 7.94 per cent in last one month, followed by a marginal drop of 0.88 per cent in last five days. We recommend to “Hold” the stock at the current market price of $33.88 in view of the strategic and progressive initiatives underway and growth opportunities from brownfield expansions that are better than many peers.
 

BHP Daily Chart (Source: Thomson Reuters)
 

Rio Tinto Limited (ASX: RIO)

RIO Details

Building strength across the business: Rio, being thefirst company in the world to receive certification under the Aluminium Stewardship Initiative, has made more commitments towards aluminium production. Rio reported aboutPT Indonesia Asahan Aluminium’s purchasing Rio’s entire interest in the Grasberg mine in Indonesia for $3.5 billion and the Group confirmed that the plan was still under discussions and parties involved in this acquisition were considering the price but have not been able to reach to any conclusion and there is no certainty that binding agreements will be signed. The Group notified to London Stock Exchange about PDMR/KMP interests in securities of Rio Tinto plc that was in accordance to the EU Market Abuse Regulation. Moreover, the Group notified to ASX about its material dealings in Rio Tinto plc shares by PDMR/KMP. The Group was granted accreditation by Australia’s Office of the National Rail Safety Regulator and got an approval of the autonomous operation of trains at the group’s iron ore business in Western Australia. Its AutoHaul® project focuses on automating the trains that transport the iron ore to Rio Tinto’s port facilities in the Pilbara region of Western Australia. This project continues to progress and is expected to be completed by the end of 2018.


Cash Return Trend in 2017 (Source: Company Reports)

Rio Tinto’s Pilbara shipments guidance for 2018 remains unchanged and will be between 330 and 340 million tonnes (100 per cent basis) but it is subject to market conditions and any weather constraints. In 2017, the Group delivered US$18.6 billion of underlying EBITDA and operating cash flows of US$13.9 billion. The Group also managed to repay all its debt and strengthen its balance sheet. The Group announced the sale of its coal assets in Queensland for a total of US$4.15 billion, which brought its total divestments announced for 2018 to nearly US$5 billion. It is expected that economy will be facing some emerging inflationary and input cost pressure in the near term. Meanwhile, RIO remains focused on delivering value to shareholders and pioneering progress in collaboration with its multiple partners in over 35 countries around the world. ROE improvement for the group to 13.6 per cent as at December 2017 is more than industry median (6.1 per cent). The stock was up by 29.75 per cent in one year and rose up by 17.91 per cent in the past six months. It is worth noting that the stock was up by 50.27 per cent in last 5 years and trades at high levels, looking “Expensive” at the current market price of $ 84.76.
 

RIO Daily Chart (Source: Thomson Reuters)
 

Woolworths Group Limited (ASX: WOW)

WOW Details

Focus to transform the business: The Group is in its second year of the five-year plan and continues to deliver low prices every day. Woolworths released its Third Quarter Sales Results for 13 week period to 1 April 2018. It is progressing significantly and is focussing on its key priorities as it pivots from turnaround to transformation. It remains charged up as there are a number of opportunities in the pipeline, which will improve its business. The sales performance remained strong in the third quarter of FY18. Despite the impact from the timing of New Year’s Day, Australian and New Zealand Food’s Easter-adjusted comparable sales increased over prior corresponding period. Endeavour Drinks’ sales increased by 6.9 per cent in the third quarter to $2.0 billion with comparable sales increase of 6.1 per cent. New Zealand Food’s sales increased by 3.4 per cent for the quarter to NZ$1.6 billion with comparable sales increasing by 3.5 per cent and Petrol sales for the quarter of $1.2 billion were largely in line with the prior year.


ROFE Performance (Source: Company Reports)

It focuses on delivering consistently good shopping experiences across all stores by embedding current strategic initiatives including ‘Simpler for Stores’ and continues to improve its digital experience. As the Group moves into the second half, its emphasis is to continue to transform its business and to build on the momentum from the first half. In Australian Food, it will begin to cycle the strong second half sales recovery in F17 and will continue to aim at delivering against the BIG W turnaround plan. Basic Earnings per share have increased 13.70 per cent in 2017. ROE improved from 6.6 per cent in June 2017 to 9.2 per cent in December 2017 which is more than industry median of about 5.6 per cent. The share prices have been rising since the start of the year and were up by 5.09 per cent and 7.33 per cent in last one month. We give a “Hold” recommendation at the current market price of $28.95.
 

WOW Daily Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.