Sellers, Brokers Batter Bhp

Sydney Morning Herald

Thursday October 23, 1997

By KATE ASKEW Resources Writer

BHP lost its position as Australia's biggest sharemarket listed company again yesterday and its shares face further pressure due to brokers' analysts planning earnings downgradings.

Analysts contacted yesterday were reworking profit forecasts based on anticipated falls in commodity prices due to likely lower demand in Asia.

BHP shares fell 88c to a four-year low of $14, as the slowdown in Asian economies prompted concern that demand for commodities such as copper and steel would fall.

This pushed BHP into second place behind National Australia Bank.

"If you are looking at lower copper prices and lower coal prices, then it is hard to see anything but profit downgrades," one Sydney-based analyst said.

Stockbroking analysts until now had been forecasting BHP to achieve a pre-abnormals profit of $1.59 billion for the year to May 31.

The figure may be downgraded by as much as $100 million.

BHP, Australia's largest resources company, is now running a slow second to rival resources company Rio Tinto, which has outperformed the All Resources Index in recent months.

It is Rio Tinto's focus on the bottom line that has won it support from institutional investors, even amid commodity price concerns.

"It is really driven by perceptions of management, the assets are not all that different," an analyst said. "Rio's management is really focused on net present value, costs and the bottom line, and BHP is still into empire building."

BHP is trading on a price-earnings multiple of 15.9 times, based on estimated earnings of 88c in 1998.

That compares with Rio Tinto's price-earnings multiple of 20.5 times 1998 earnings.

"Overall I think Rio looks good," Jardine Fleming Australia Investment Management investment director Mr Rob Currie said. "BHP has had inflated ideas."

Nevertheless, shares in Rio Tinto did not escape the negative sentiment yesterday, which traced overnight falls in its London-traded securities, and fell $1.06 to $19.15.

BHP's management has been heavily criticised by institutional investors following falling profits, costs blow-outs and management upheaval.

It is also facing competition for investment dollars from Telstra, particularly from offshore institutional investors.

BHP Earnings ($bn) before abnormals

May 1997            1.49
May 1998            1.59 (est)
May 1999            2.14 (est)
Dec 1996            1.1
Dec 1997            1.76 (est)
Dec 1998            1.94 (est)

© 1997 Sydney Morning Herald

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