What Happened to the BHP Billiton Share Price?
Shares of BHP Billiton [ASX:BHP] fell 3.91%, to $38.13, today. The share price took a hit after the company announced a 23% increase in profit and said that it wouldn’t buy back any shares. This seems like a good idea, as it preserves cash heading into the planned company de-merger.
Why Did This Happen to BHP Shares?
BHP Billiton [ASX:BHP] is the world’s largest diversified miner. It trades on the ASX with a market capitalisation of $127.7 billion.
BHP’s world class resource projects are large, low cost, and diversified across geography and commodities. It’s also the world’s third largest iron ore producer after RIO and Vale S.A. (a Brazilian company).
Last week BHP announced plans of a de-merger of its less profitable businesses. It plans to reduce its asset base to focus on iron ore, coal, petroleum, and copper. BHP believes that this asset structure will offer simplification, diversification and could generate ‘stronger growth in cash flow’.
The company also said that it plans to retain potash as a possible fifth pillar of the business.
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What Now for BHP Billiton?
BHP’s share price couldn’t break through the key resistance level of $39.50. It hasn’t been able to clearly break through this level for the past two years. And after the fall today, the share price is sitting at just above $38 per share.
Saying this, typically de-mergers add strength to a share price. In this sense, shareholders should get a kick out of BHP offloading its nickel, aluminium and manganese divisions.
In my view, BHP’s new strategy looks good. Not only does BHP recognise that energy is the future, it also understands that food is finite. Saying this, some fear that BHP’s breakup will see its risk increase as the business losses some of its earnings diversity.
Potash will be a crucial profit stream for BHP in the decades to come as developing countries become richer. It’s a well-known fact that people tend to eat more meat as they become wealthier.
So, not only will farmers need to produce more crops for human consumption, they’ll need to produce more crops to feed the increased livestock. That means a greater demand for potash.
This is a great commodity for the long term in BHP’s portfolio. However, it’s unlikely that the company’s potash project will be in production for at least a decade.
Looking into the future, BHP’s share price should strengthen based on its capital management initiatives.
Jason Stevenson+
Resources Analyst, Money Morning
The post Why the BHP Billiton Share Price Fell Today appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
