Wednesday tips round-up: BHP Billiton, IG Group

18th Mar 2015 09:11

BHP Billiton's decision to de-merge some of its non-core activities into a new vehicle, South 32, opens up some intriguing possibilities, according to The Times' Tempus column. In essence, the Australian miner is hoping the new company will eventually become the target of a takeover. Unlike most miners, it will not have any exposure to iron ore. Furthermore, as an Aussie outfit it will not be eligible for inclusion in the various indices.At approximately $700m the amount of debt and liabilities which will be left on the balance sheet will be relatively light. However, management has promised that 40% of underlying earnings will be paid out in dividends - suggesting a special dividend of about 3.4% will be paid out. Hence, it would seem there is an underlying assumption of equity issuance to fund further investments.Nonetheless, it may not be the best moment to put more money on the new company's stock. The remaining core activities, on the other hand, offer dividend income, the prospect of a recovery in its markets as commodities recover and the potential for cost savings - which may run ahead of £4bn by 2017. Hold, Tempus recommends.Excluding the impact of the Swiss franc's revaluation IG Group's third-quarter growth in active clients and revenues was good enough, with both higher by 7%. Indeed, the company has benefitted from the increased volatility seen in the second and third quarters of 2014. Yet at most greater swings in markets will only raise its revenues by about 5% in a given year.The potential exists for it to move into China. IG has also set up a stockbroking operation. Nonetheless, changing hands at 16 times earnings estimates for 2015-2016 the shares look up with events. The dividend yield on offer has also fallen below 4% for this year."Broking, though, will take several years to improve the bottom line. For now, the shares look up with events," Tempus said. "Avoid for now" is the column's advice.