Brokers Boost Bhp Forecasts

Sydney Morning Herald

Tuesday June 29, 1999

By KATE ASKEW Resources Writer

Stockbroking analysts upgraded this year's earnings forecasts for BHP yesterday - some by more than 10 per cent - after the company demonstrated in last week's annual result that it had addressed its loss-making businesses and restructured its balance sheet to cut depreciation charges.

Investors responded by pushing BHP up 70c, or more than 4 per cent, to $17.60.

Last week, BHP disclosed a net operating loss of $2.3 billion for the year to May following another round of asset writedowns.

Macquarie Equities had one of the most optimistic forecasts, upgrading its 1999-2000 profit estimate by $100 million, or 11 per cent, to $1 billion, saying BHP's financial performance was set to improve following the closure, sale or restructuring of underperforming assets. It is also factoring in a rising oil price. Nevertheless, BHP copped some criticism from institutional investors because of the size of some of the writedowns, particularly US copper, which has written off an additional $600 million above the book value in recognition of closure costs.

Analysts, however, were confident that BHP would now be able to realise an abnormal profit on the expected sale of at least some of the US copper assets, another positive influence on BHP's share price going forward.

Credit Suisse First Boston director Mr Peter O'Connor has upgraded 1999-2000 profits by 5 per cent to $951 million.

"We believe BHP will generate sufficient cash flows from core assets to maintain its dividend and become a net acquirer of assets within 24 months," CSFB said.

BHP managing director Mr Paul Anderson warned shareholders after the company's third quarter result that its dividends were under pressure. However, he refused to comment on the board's view of the first half dividend (declared on the release of the company's first quarter result) last week.

"The more rigorous capital controls in place at BHP will see the company replace underperforming investments with investments that exceed their cost of capital in the future, creating significant wealth for shareholders," CSFB said.

Merrill Lynch lifted its profit forecast by 3 per cent to $851 million on the strength of upward revisions in commodity prices and reduced depreciation charges following the writedown of BHP's NZ steel operations.

Warburg Dillon Read, which is reviewing its earnings forecasts, lifted its forecasts by $101 million, or 4.3 per cent, to $929.7 million.