BHP Billiton reports 7.8bn increase in free cash flow, buybacks possible

18th Feb 2014 06:31

BHP Billiton has reported a 15 per cent increase in interim underlying operating profits, in terms of earnings before interest and taxes (EBIT), to reach 12.4bn dollars. Underlying attributable profit rose by 31% to reach $7.8bn.Volume and cost efficiencies to the tune of $4.9bn led to a 9% increase in the group's underlying EBIT, to 38%, and a 22% underlying return on capital. Efficiencies were expected to reach an annualised pace of $5.5bn by the end of the 2014 fiscal year.Free cash flow upFree cash flow improved by $7.8bn during the period, the company said. Net debt was projected to decrease towards $25bn by the end of the financial year, from $27.1bn at the end of the current reporting period."With strong free cash flow, selective investment and continued simplification, we are well placed to extend our strong track record of capital management," Chief Executive Andrew Mackenzie said.Some observers took that as a hint that an increased dividend pay-out or share buybacks might now be a possibility at some point down the line. The interim dividend was maintained at last year's level for the final dividend of 59 US cents, which implied a rise of 3.5%. Nonetheless, that was slightly lower than expected by some analysts. Shares of the firm finished 2.29% higher at 38.89 Australian dollars in Sydney trading. "Based on our analysis, shares of BHP Billiton should outperform shares of most other miners including Rio Tinto over the very long-term (and over the next few days). With this in mind, we would buy shares of BHP Billiton at current levels. However, we still have a slight preference for shares of Rio over shares of BHP for 2014 as Rio is more aggressively deleveraging, more aggressively growing its dividend, and trading at a significant discount. We also expect the iron ore price to surprise to the upside this year, which should be a significant positive for Rio," said analysts at Jefferies.AB