Investors in London have given the BHP Billiton (BHP) spin off the thumbs down, selling down the company’s shares by close to 5%.
The shares fell 3% in early trading, and then extended their losses to close down nearly 5% as UK and other investors moaned about the lack of a buyback and the fact that the new company will be based in Australia, without a separate London listing (like the parent).
In New York BHP shares were down 3.5% at the close, which was close to the initial reaction in London. US investors though do not have the same concerns about the stock being listed in Australia and seem more worried about the absence of a buyback announcement yesterday.
Shareholders in the London listed company will get shares in the new company, but will have to trade them through Australia or South African markets, which has upset them.
BHP said it had to treat all shareholders the same, so everyone gets shares in the new company, regardless of where they live.
Many of these moaning investors have clients who refuse to, or can’t own shares in foreign listed companies, so they will have to sell their new company shares.
They claim they are being treated as second class shareholder.
BHP LSE vs BHP ASX – BHP demerger disappoints UK investors
BHP’s spin off announcement came it revealed a 23% lift in profit to $US13.8 billion, from $US10.9 billion in 2012-13, thanks to the company’s booming iron ore operations which lifted their earnings by around 20%, after weaker contributions from petroleum, copper and coal.
As well, a 32% of $US5.7 billion drop in capital spending in the year to June helped boost the bottom line.
Operating earnings only managed a 9% rise in the year to $US22.9 billion from $US21.1 billion, thanks again to the 20% rise in iron ore earnings.
Thanks to the iron ore contribution and the cut in capex, BHP’s underlying earnings reached $US13.4 billion, (after impairments and write downs previously announced), just under the $US13.58 billion predicted analysts in a Bloomberg survey.
The higher result came despite a weakening in the price of major commodities, especially in the second half, when iron ore and coal prices fell noticeably.
That saw revenues rise 11% to $US67.2 billion.
BHP was able to boost exports and cut costs sufficiently to overcome the slide in commodity prices.
Shareholders will be payed a final dividend of 62 US cents, fully franked, up from 59 US cents for last half of 2012-13.
That will take total dividend for the year to $US1.21 a share for the year.
And directors held out the hope to shareholders that regular capital management measures are just around the corner by saying the restructure was putting the company on the right footing for such activities.
“We will return excess cash to shareholders in the most efficient way.
"By ensuring that we start from a position of strength, we will be well placed to implement an enduring programme that can be managed in a more consistent and predictable manner,” BHP said yesterday.
That commitment wasn’t good enough for offshore investors who wanted a buyback, now.
Investors rushed to buy BHP shares ahead of Tuesday’s results, with the company’s Australian shares higher by about 1.5% or 53 cents closing on $39.74.
But they were sold off in London trading after the two announcements.
BHP shares jumped by more than 3% in Australia since last Friday when the company revealed it was looking the spin off second tier assets and retain iron ore, coal, petroleum, copper and possibly potash.
The solid profit came off the back of BHP’s 15th straight year of record iron ore production and despite a slow down in second half world iron ore prices.
Chief executive Andrew Mackenzie said in yesterday’s profit statement BHP had delivered on its commitments in the past 12 months.
"Our operational performance continued to improve, enabling us to exceed production guidance for a number of our core commodities including iron ore, metallurgical coal and petroleum liquids," he said.
BHP’s earnings came from a 20% rise in earnings from iron ore to $US12.1 billion from $US10.3 billion in 2012-13.
Copper earnings dipped to $US5.6 billion, down from $US5.99 billion.
Petroleum and potash earnings totalled $US5.3 billion, down from $US6.9 billion. Coal earnings also fell, hitting $US386 million, down from $US516 million.
And aluminium, manganese and nickel earnings (which are going into the new company) recovered to $US307 million, up from $US3.77 billion loss in 2012-13 when there were big write-downs.
BHP Results Presentation Year Ended 30 June 2014
