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BHP Billiton: Should We Expect More Value after Fiscal 2017 Results?

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Part 8
BHP Billiton: Should We Expect More Value after Fiscal 2017 Results? PART 8 OF 10

BHP Billiton Strengthens Its Balance Sheet: 2018 Outlook

Balance sheet strength

BHP Billiton (BHP) (BBL) made strong progress reducing its net debt in fiscal 2017. It lowered it nearly $10.0 billion, from $26.0 billion to $16.3 billion as of June 30, 2017. The impressive reduction was due to the company’s robust free cash flow (or FCF). It had the second-highest FCF on record of $12.6 billion. That reduced its debt and allowed the company to return $4.4 billion to its shareholders in the form of dividends. It’s worth noting that BHP’s debt reduction for fiscal 2017 also included a non-cash fair value adjustment of $1.2 billion related to the interest rate and exchange rate movements. BHP’s management is targeting a net debt range of $10.0 billion to $15.0 billion in the medium term.

BHP Billiton Strengthens Its Balance Sheet: 2018 Outlook

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Peers’ debts

BHP’s peer Rio Tinto (RIO) reduced its net debt $2.0 billion for the first half of 2017. Vale’s (VALE) balance sheet remains constrained compared to its peers. However, it’s making efforts to reduce its debt as fast as possible. Vale had a net debt of $22.1 billion at the end of June 2017.

Financial leverage

BHP has a strong balance sheet in this depressed commodity environment. It had a financial leverage ratio of 20.6% at the end of June 2017 compared to 24.3% at the end of December 2016. Rio Tinto has a lower leverage than BHP. BHP’s credit rating is strong compared to its peer group (XME), including Freeport-McMoRan (FCX), Vale (VALE), and Anglo American (AAUKY). BHP’s maturity profile is also well balanced with a debt maturity of more than nine years.

In the next part of this series, we’ll look at analysts’ reactions to BHP’s latest results.

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