Oh dear, the greedy investor was there for all to see in the sell-off in BHP Billiton (BHP) shares yesterday.
Rather than sit back and wait for the documentation on the spin off company and enjoy the higher dividend, and wait for a buyback to happen in the next year, the greedy ones stamped their tiny feet and said, ‘this is not good enough’ and sold.’
Or was the London greedy investors selling because BHP is not listing the spin off company there, just in Australia.
The London-based moaners were responsible for the sell down on Tuesday night, and, and the sheep in New York followed suit.
Overnight, the selling stopped and BHP shares edged up less than 1% in London and 1.4% in New York.
That will force the local sheep, who sold the shares down yesterday, to reverse course today.
Remember many of the same investors had chased BHP shares 3% higher since Friday to Tuesday afternoon on the expectation of the spin off, not the capital return/buyback idea.
But in a classic example of ‘buy the rumour, sell the fact’, the same enthusiasts were sellers yesterday.
As a result, BHP shares fell 3.9% to $38.13 yesterday, a drop of $1.55 on the day. They were down to a low of $37.83, a fall of close to 5%.
BHP LSE vs BHP ASX YTD – Investors, analysts spit the dummy
A flock of analysts tuttered and moved the company’s ranking about yesterday, but the bottom line is that the spin off will happen and no amount of share selling will change that, or force management to bring in a share buyback before the board is ready.
Here’s a selection of early analyst commentaries:
JPMorgan is keeping its neutral rating on BHP arguing it expects more upside in rival miner Rio Tinto over the next 12 months, particularly with its ability to announce capital management initiatives in the first half of 2015.
"BHP is now trading at relatively high multiples vs its peers," JP Morgan analyst Lyndon Fagan said in a note to clients.
"Now that capital management appears to be off the agenda near term, and there is unlikely to be a rush to own the Ltd stock to gain a stake in NewCo, the share price could remain under pressure near term.”
Citigroup has retained its neutral rating as well, but says the lack of capital management initiatives disappoints and notes investors now face a choice over two very different looking mining companies.
“Investors will have a choice between a NewCo with high leverage to commodity cycles versus a company with more stable earnings, margins, and cash flows where the latter could be at a disadvantage in up cycle," Citi analyst Clarke Wilkins said in a client note.
"Somewhat ironically we expect strong earnings growth from non-core BHP driven by higher nickel, aluminium and coal prices, while core-BHP earnings decline driven by iron ore," she said.
Macquarie downgraded BHP to neutral from outperform, noting its underlying profit of $US13.4 billion was 1.4 per cent below the broker’s forecast, with BHP’s dividend of US121c a share also slightly below its expectations.
However, Macquarie analyst Adrian Wood increased its target price on BHP to $42.50 from $41 saying the company’s greater focus on iron ore expansion in the Pilbara to 290 million tonnes a year from previous guidance of 260-270 million tonnes a year would be well received.
Schroders fund manager Sam Twidale, was quoted on marketwatch.com as saying in London "I agree that the rationale for the demerger makes a lot of sense, allowing BHP to focus on extracting value from its core operations," said which holds BHP shares. "However, it poses issues for some U.K. shareholders, given there won’t be a London listing." Some U.K.-based funds are precluded from owning shares in companies listed abroad."
Under the spinoff, investors in BHP’s Australian and UK listings would get the shares of the new company.
It will be based in Perth, Australia, and have a secondary listing on the Johannesburg Stock Exchange. The company predicted that the spinoff, which is subject to shareholder approval, could be completed in the first half of next year.
