brokers say sell ?, page-5

Merrill Lynch report:

FY10 result; broadly in line with our expectations

FY10 results were broadly in line with our expectations, primarily driven strong production and higher realised copper prices. The key focus was on the 4 proposed capital management programs. Underlying earnings of $398m (MLe: $394m) was in line with our expectation albeit a little below consensus (of $416m but within the range $346-$579m). Reported earnings of $586.9m (MLe: $599m)

Operationally the result was in line with our estimate. However, EBITDA of $596m (MLe: $685m) was impacted by a FX loss of $89m ($68m of which was unrealised). The result was impacted negatively by this FX loss but this was offset by a significantly better tax expense than we had forecast. This resulted in net earnings in line.

Cashed up; capital management initiatives the focus

We view today's proposal as positive (at ~$720m, as it was more than we had expected and maintains a very healthy cash balance). The proposed capital management programs include: (1) Capital return of 12?ps (~$390m); (2) $200m on-market share buyback; (3) Final dividend of 4?ps (taking FY dividends to 7?ps); and (4) 10-for-1 share consolidation. All together these if approved and executed will return ~$720m or 22?ps (MLe: capital returns of up $400-500m (12- 15?ps)). While we like the capital management initiatives, we do note that we do not understand the rationale behind the share consolidation.

Maintain BUY, PO$2.30/sh

Copper remains our preferred base metal exposure. Until exploration success is apparent and PH goes ex-growth, we believe copper prices will be the key driver for the share price performance.

FY10 result takeaways; broadly in line

FY10 results were broadly in line with our expectations, primarily driven strong production and higher realised copper prices. The key focus was on the 4 proposed capital management programs. Key points to focus on are:

􀂄 Underlying earnings of $398m (MLe: $394m) was in line with our expectation albeit a little below consensus (of $416m but within the range $346-$579m). Reported earnings of $586.9m (MLe: $599m)

Operationally the result was in line with our estimate. However, EBITDA of $596m (MLe: $685m) was below our forecasts, as it was impacted by a FX loss of $89m ($68m of which was unrealised). The result was impacted negatively by this FX loss but this was offset by a significantly better tax expense than we had forecast. This resulted in net earnings in line.

􀂄 Net cash $1.3bn (MLe: $1.4bn). Net operating cashflow was $616m (MLe: $720m), which was impacted by a delay to a shipment in December to January. We understand this impacted receipts by >$50m.

􀂄 Declared an unfranked final dividend of 4?ps (MLe: 2?ps) to be paid in March, 2011.

􀂄 Capital return $390m, a share buyback of $200m and 10-for-1 share consolidation