Why BHP Billiton Remains Overvalued

Despite strong results, analysts believe BHP is overvalued due to high expenditure and a drop in demand for commodities - but the stock will pay a dividend this year

Mathew Hodge 23 August, 2017 | 9:20AM
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BHP Billiton office

BHP Billiton (BLT) will exit the US shale oil and gas sector, citing the lack of operational fit with other assets. Morningstar equity analysts agree the company paid too much to acquire its shale assets and returns on that high cost base are poor.

A sale will crystalise a significant loss, but this is better than retaining the shale assets if BHP can extract a good price. The conventional petroleum assets will be retained, a modest diversification benefit, as well as an energy price hedge. We’re also more positive on the longer-term outlook for oil given prices will need to improve to encourage new investment to replace depletion.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BHP Group PLC1,979.80 GBX-0.81Rating

About Author

Mathew Hodge  is Morningstar's director of equity research, Australia & New Zealand.