BHP Billiton Ltd (ASX: BHP)

Mixed Performance: Down 4.7% on February 21, 2018, BHP announced its half yearly results and attributable profits were US$2.0 billion (statutory profit fall of 37%) that include an exceptional loss of US$2.0 billion predominantly related to the US tax reform. Underlying EBITDA was US$11.2 billion and underlying EBITDA margin was 53% which reflects higher commodity prices and a solid operating performance. The Board determined to pay an interim dividend of 55 US cents per share which includes an additional amount of 17 cents per share that is above 50% of the minimum pay-out policy. Return on capital employed was 12.8% and it is expected that it will improve further. In the December 2017 half year, BHP reported an exceptional loss of US$ 210 million that was related to Samarco dam failure. Productivity guidance remained unchanged and US$2 billion of gains are expected to be delivered in the next 2 years till the end of 2019. At the end of December 2017, BHP had four major projects under development in Petroleum, Copper and Potash and the combined budget was US$7.5 billion over the life of the projects and all four major projects remain on time and on budget. However, the negative productivity of US$496 million owing to Olympic Dam shut down and issues at BMA, led the sentiment down. The stock price increased by 21.8% in the past six months and by 4.26% in the past one week. We recommend to “Hold” the stock at the current price of $29.81
 

Productivity Performance (Source: Company Reports)
 

Fortescue Metals Group Limited (ASX: FMG)

Fall in net profit after tax: Down 4.6%, FMG released its FY18 half year results and reported a net profit after tax of US$681 million (down 44%) and an underlying EBITDA of US$1,828 million. Total iron ore shipments for the six months ended 31 December 2017 were 84.5 mt with C1 costs of US$12.11/wmt. Productivity and efficiency initiatives continued to deliver operational improvements and resulted in consistent earnings per tonne and strong cash flow generation. The Board declared an interim fully franked dividend of A$0.11 per share which is a 40 per cent pay-out of net profit after tax. However, the revenue decreased by 18 per cent as compared to HY17 and amounted to US$3,679 million. Cash at 31 December 2017 was US$892 million and the gross debt reduced to US$4.2 billion and the Group established a new Term Loan of US$1.4 while the proceeds will be used to partially repay the high cost of 2022 Senior Secured Notes. While the group is developing low cost growth options across Iron ore, Lithium, Copper and Gold, we believe that the stock is “Expensive” at the current market price of $5.11
 

Cost Improvement Trend (Source: Company Reports)

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