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BHP Billiton

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dspp
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Re: BHP Billiton

#155615

Postby dspp » July 27th, 2018, 2:39 pm

Matt,

Yes, "buy the market" = buy a low-cost index tracker (or a closet index tracker, aka a high cost fund)

If however you are now wanting to chase after secular early-stage growth opportunities (your EV, Tesco charging, etc, ideas) then this is the high risk growth category. I thought you had just dismissed that sort of thing as being too high risk. Or is it "this time its different" ?

Regarding the specific of EV charging I had business plans crossing my desk about 10-15 years ago for the entrants in that market. They have mostly been bought out now by the likes of Shell, BP, etc. We in the relevant sector fully dissected all the various strategic entry options back a long time ago (and yes, supermarkets do figure in that). If you really want to do the high growth stuff (and if you really want to take the complete-wipe-out-risks attached) then you need to be looking 10-15 years ahead of now, not 10-15 years in the past. Predicting the future is very difficult.

regards, dspp

TheMotorcycleBoy
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Re: BHP Billiton

#155892

Postby TheMotorcycleBoy » July 29th, 2018, 6:12 am

ap8889 wrote:I am not convinced that anything other than a pushbike makes sense for the long term health of the planet

Indeed. People might think leccy cars are green and pleasant but the sparks must obviously be generated.

My personal view (I'd like to imagine that I have green philosophy at heart), is any sustainable motive future, would entail fields of either cane, beet, or oceans of kelp fermented into ethanol.....and likewise maize (or whatever) for the lubricating oil. But that would require vast swathes of land and industrial, inconsistent with both current geopolitics and fashion/high-margin industries.

ap8889 wrote: but am happy to profit from the trend for consumers to finance shiny new must-have status symbols. Bland virtue signalling via new 2 tonne battery vehicles is crazy, but that's the world we need to make our money in.

Yes, consumers eh?

TheMotorcycleBoy
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Re: BHP Billiton

#155893

Postby TheMotorcycleBoy » July 29th, 2018, 6:30 am

dspp wrote:Yes, "buy the market" = buy a low-cost index tracker (or a closet index tracker, aka a high cost fund)

We have about 3.2k in a fidelity world equity index already.

dspp wrote:If however you are now wanting to chase after secular early-stage growth opportunities (your EV, Tesco charging, etc, ideas) then this is the high risk growth category. I thought you had just dismissed that sort of thing as being too high risk. Or is it "this time its different" ?

Ha! No I was being a trifle frivolous, in my response to:
viewtopic.php?p=155518#p155518

dspp wrote:Regarding the specific of EV charging I had business plans crossing my desk about 10-15 years ago for the entrants in that market. They have mostly been bought out now by the likes of Shell, BP, etc. We in the relevant sector fully dissected all the various strategic entry options back a long time ago (and yes, supermarkets do figure in that).

Yes, of course, I remember talking to folk about Gaia back in the 90s

https://en.wikipedia.org/wiki/Gaia_hypothesis

Mainstream industries presumably will catch on when oil/gas become less and less viable to try to extract.

But the thing I mentioned regarding different charging interfaces/payment schemes seems a no-brainer.

dspp wrote:If you really want to do the high growth stuff (and if you really want to take the complete-wipe-out-risks attached) then you need to be looking 10-15 years ahead of now, not 10-15 years in the past. Predicting the future is very difficult.

No! I've iterated our goal to this forum a few times already, as I recently did to you in my reply:
viewtopic.php?p=155584#p155584

Matt

cshfool
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Re: BHP Billiton

#157126

Postby cshfool » August 4th, 2018, 1:36 pm

BHP Billiton (BLT) has been a truly roller coaster ride in dividend (and share price terms) over the last few years and was one of Stephen Bland picks in his dividend newletter - published elsewhere, and a factor in why I went for it, though I do a lot more research and thinking independently now.

Before the cut, those of us who held BLT watched while the apparent forecast yield crept up (geared inversely with the falling share price) so that it reached about 12% at one time - a not credible level with interest rates at 0.5% (discuss!) and eventually the dividend was cut.

In retrospect around the time of the cut was of course a great time to buy - easy to say but actually very hard, in practice to do when one is down 60% or so. It has recovered at a slightly slower rate that it went down, and is now not far off a similar level in terms of dividends and capital including the South32 (S32) spinout shares which holders have seen double. For true contrarians of which I think there are actually very few, a substantial capital gain could have been made by buying when "the blood was running on the streets" and on the back of a cut. This is far from easy to do in practice - perhaps Ben Graham (try "The Intelligent Investor" and Warrens teacher of course) would perhaps have described BLT at that time as "an unpopular larger company". Having seen my investment halve and rebound I would agree with that -it was unpopular with me, especially given the long history of held dividends previously, - the difficulty is not with the analysis but with the fortitude to stop ones emotional framework being corroded by falling capital, economic prospects, and dividend outlook. Hence Stephens Dorisian mantra, ie don't even look at it, go and bake some scones instead, its probably a better investment strategy in the long term, though not a strategy that is possible (I think) for those of us who look at investment websites. Even just holding through dark days is not that easy, never mind buying more.

FWIW I have both S32 and BLT, having bought a little more S32 as I have a penchant for companies - as S32 was prior to latest activities - with net cash.

Whether BLT is a buy at the moment - I'll let you think about that, I have enough in that sector already to be honest, but it could be a bumpy night again.

csh

PS I see a similar possible plunge situation is developing with Persimmon (PSN) also holding - and expect it to get a lot worse, no guarantees of course (235p /2437p) = 9.8%....is everybody roped up, ready for a drop to book value or less? ie £10 or so. A separate thread for that one perhaps.

scrumpyjack
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Re: BHP Billiton

#157159

Postby scrumpyjack » August 4th, 2018, 5:24 pm

It is curious that Hargreaves Lansdown and others always rabbit on about book value when discussing builders but not about any other companies

It seems to me the barriers to entry to housebuilding are far far greater than they used to be and that is one reason builders have managed to maintain very high levels of profit for so long. Dealing with planners, regulations etc and the general hassle factor of building an estate of houses means the old small builders generally can't do it any more. If there weren't barriers to entry we would have seen far more builders spring up and bring down prices and margins. It hasn't happened. In that context net asset value is much less relevant.

Yes the level of profit of Persimmon is high and things may revert to a lower level, but at present they seem on course to pay back the current NAV in about 4 years so I'm staying in. Having bought at an average price to 500p and having had more than that back in divis I'm not abandoning the golden goose yet.

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Re: BHP Billiton

#157167

Postby Gengulphus » August 4th, 2018, 6:02 pm

cshfool wrote:...it was unpopular with me, especially given the long history of held dividends previously ...

Are you thinking of some other share? BHP Billiton's dividend record does not exhibit such a "long history"!

Gengulphus

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Re: BHP Billiton

#163253

Postby TUK020 » August 30th, 2018, 9:58 pm

I hope what I am about to do is helpful - to try and provide a historic perspective on BLT's sp gyrations.

Back on the old web site TMF, there was a celebrated contributor who went by the moniker "Valuemargin". I copied and saved several of his posts, and reproduce part of one here from Oct 15, when he was answering the question:

Do you have any views on the future dividends of RDSB & BLT, over the short, medium and long term.
2 mega caps with very long term dividend histories. Near term forecast dividend cover is looking very low for both stocks. What in your opinion the likelihood the dividends be sustained?



Ian Pickering wisely invoked 'strategic ignorance' when confronted with this simple, but impossible to answer with any degree of certainty, question. If you asked the chairman and chief executives of these two formidable companies what the shape of their businesses will be in 25 years time and then time travel to check they were correct, you'd be lucky if they were half right, let alone what their dividend situation would be. Shell started out in sea shells, they once owned the business that has become the BLT spin off South 32 (S32), Broken Hill Proprietary was, until not long ago, a major producer of steel, none of these situations apply now. All we can expect is that RDSB and BLT will adapt and evolve and be aware that RDSB (equivalent of the old Shell Transport and trading), but not RDSA, has never cut its dividend as a public company and that BLT has not done either for over a hundred years and has paid out at least £1 million pounds to shareholders in every year since 1890.


In the long term its fair to say that RDSB and BLT operate in mature industries. Resource use in becoming less intensive through efficiencies, renewable energy is causing slow, but progressive displacement, recycling of scrap metals is increasing and fossil fuels face environmental curbs and carbon pricing mechanisms. Set against these headwinds, population growth, urbanisation and demand for oil and mineral enabled consumer goods continue to increase. Overall the consensus is that both oil consumption and mineral sales will continue to enjoy positive sales growth in the remainder of the first half of the 21st century, but at a slower pace than the growth in global GDP. By increasingly focussing its portfolio on gas rather than oil,Shell appears to be backing the most politically and environmentally acceptable fossil fuel, whilst BLT's 4 pillar diversity in lowest quartile cost, long lasting and high grade iron ore, copper, oil and gas,coal and a potentially exciting 5th in potash deposits would appear to position it as strongly as any other rival going forward.


As far as the immediate outlook is concerned, it is clear dividends at both companies are under stress -hence the current 6.6% yield at RDSB and 7.0% at BLT. Forecast dividend cover this year for RDSB is 1.1, BLT to June 2015 was fractionally uncovered, whilst in the year to June 2016, assuming iron ore, copper, coal and oil & gas remain around current prices the BLT dividend will be barely more than half covered.


As the boss of RDSB states, the firm has powerful levers to pull to defend the iconic dividend. The current dividend has been guaranteed through 2016 and a scrip dividend has been introduced for 2015, which so far has deflected 23% of the cash cost of the dividend, a material amount. Debt gearing is a light 15%, though this will rise into the 20s when the takeover of BG (BG)passes all its regulatory hurdles. However, this in turn will allow for $30bn of asset disposals between 2016-18, as Shell cherry picks the best bits of the combined portfolios. Such disposals would cover the dividend for two years and there are also $billions of productivity cost reductions in the pipeline and a planned $7billion capex reduction, as RDSB operates on the assumption of a prolonged downturn in oil prices. Whilst exploration & production profits have collapsed, downstream profits from refining, petro chemicals, lubricants,petrol stations and trading have increased to their best levels this century, showing that even as oil prices fall, the integrated operations of the firm partially protect. In the first half of 2015 over three quarters of profit came from downstream. If the oil price declines further, there can be further deferral of expansion capex.


Will the oil price fall further? I have absolutely no professional expertise on these matters. Clearly, the success of the horizontal drilling fracking process in the USA has increased supply, but the growth in this is rapidly falling away as the cost of oil has fallen. OPEC have maintained high levels of production because of their own financial pressures, but existing operating fields are shrinking at 3% to 4% per annum. Equilibrium of supply and demand can quickly become established. Looking at the oil price chart, the Brent Crude benchmark fell below $50 a barrel in January and it is no lower now. To my untrained eye it looks as though we are bumping along the bottom, though of course some geo-political shock out of the blue could create some temporary wild gyration, my guess would be we have reached the stiffest conditions on price and given its financial strength and other positives listed above, I think on balance RDSB should be able to tough out the situation.


In comparison BLT's dividend security looks more precarious. In the year to June 2015 free cash flow just about covered the dividend, but as I mentioned above on present commodity prices it will be seriously uncovered for 2016. History shows that a cyclical firm with a dividend record to defend will pay out an uncovered dividend for a maximum of two years. Rio Tinto (RIO)managed this in the late 1990s when metal prices last bombed. BLT's balance sheet is reasonable, but not as good as RDSB with debt at 35% of shareholder funds, which was actually slightly down in 2015. They could borrow to fund the dividend, but not for long without threatening their grade A credit rating. Interestingly, a recent RNS reveals BLT have raised $6.5bn in hybrid bonds 'for general corporate purposes', interestingly almost the exact value of the annual dividend commitment.


There are other positives at work in protecting the dividend, too. Capex is being reduced by $6.5bn over the next two years, big annual productivity gains have crimped costs by $6.6bn over the past two years and are on going. Similarly production, particularly of iron ore is rising, whilst the overall supply of the commodity by the industry is falling. Very importantly, rival firms like Glencore, Fortescue, Cliffs and Vale are in a bad way, making losses, or with a weak balance sheet or both. Capitulation by heavily indebted players, either through bankruptcy, fire asset sales or mine closures would be very positive for BLT and a catalyst for price improvement and dividend coverability. Copper prices are falling gently at present, but there appears to be a consensus that by 2018 supply will be tight and, therefore, prices will start to rise.


Iron ore, copper and oil & gas are the three key ingredients in BLT's bottom line. I have discussed oil and copper already, but looking at the iron ore chart prices at $54 a tonne are no lower than they were 6 months ago, so like oil it looks as though they have found a natural floor as rival operators flounder in the cost environment and close capacity.


This is what BLT's chief executive had to say when quizzed on the dividend situation: "Our commitment to our progressive dividend is resolute, and this means that in every half year reporting period we aim to match or grow our dividend per share. This is a commitment which has withstood many previous cycles, and is and remains a key differential relative to our peers. It is a pretty strong commitment and one we feel is part of the compact we have made with our shareholders. Our dividend we want to buttress and our resolve is very strong to keep it." Clearly, a pretty sacrosanct issue as far as the company's self esteem is concerned.


My own gut feeling is the situation is very touch and go for BLT. Since the turn of the century the firm has roughly doubled production, but the dividend has increased ten fold. Here in lies the problem as far as I am concerned. The elevated value of sales resulting from the China boom created a complacency that such super profits could persist and that demand in China would continue to grow faster than the mining industry could supply. In hindsight, periodic special dividends would have been more appropriate, with a more modest core dividend, as now practiced by several insurance companies.
For the dividend to persist at current levels BLT requires some recovery in iron, copper and oil prices, which may come about by the capitulation of rivals who cannot compete profitably at current prices, but it is a hostage to the outcome of events. Whereas, I suspect RDSB can support its dividend even if the oil price fails to increase in the next couple of years.


Rio Tinto (RIO), BLT's great rival I feel is capable of maintaining its dividend, given its better balance sheet(27%gearing), continuing covered dividend both by earnings and cash flow, rising production and strength in Aluminium where pricing pressures are modest. At 2493p and yielding 5.8% I think it constitutes strong value.


Valuemargin

-------------------


About the time of TLF set up, I exchanged several P.M.s with Valuemargin to let him know about the new site. Unfortunately the last mail to him bounced with an "address not known" response.

This sort of insight is not just provided by ratio analysis. Re-reading this perspective today makes me think that the really important question is how long companies can pay dividends that are uncovered by free cash flow, especially when their core business requires significant capex to keep production running, whether that is developing new mines, drilling new oil fields, or even rolling out new 4G networks. I wonder how Valuemargin would assess Vodafone's position right now.
TUK020

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Re: BHP Billiton

#163306

Postby scrumpyjack » August 31st, 2018, 8:57 am

Other problems I have seen in companies I have been involved with are:

Investment bankers pushing directors to do deals because the huge transaction fees are what the bankers feed on

Directors being bored simply running the existing business. The feeling that you have got to be expanding into new areas / countries rather than simply 'sticking to your knitting' and doing that really well.

TheMotorcycleBoy
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Re: BHP Billiton

#163599

Postby TheMotorcycleBoy » September 1st, 2018, 6:45 pm

TUK020 wrote:I hope what I am about to do is helpful - to try and provide a historic perspective on BLT's sp gyrations.....

Many thanks, for digging this one out TUK. Just managed to give it a full read, and yes, VM writes a very interesting review.

Matt


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