abn says buy

Investment Stories:
BHP Billiton (BHP) – An 86 billion dollar bargain

If a forward P/E of 6x isn’t reason enough to start accumulating BHP then I don’t know what is! Every long term portfolio should be accumulating at these prices. Put them in the bottom draw and revisit them when they hit $30!

Technicals

BHP has been in a strong uptrend since early 2003. After rallying to $32 in May 06 the stock has been under some selling pressure. The stock is now sitting on a previous turning point at $24.50 where it managed to bounce in June. This level is also the 38.2% Fibonacci support line and looks like a good level to start accumulating the stock for a longer term play. ABN AMRO 12 month price target of $36.

Fundamentals

We are forecasting a FY07 NPAT of US$13.441 bln. Considering BHP’s current market cap is ~A$86 bln, if we assume an exchange rate of 1 aussie for 0.75 US that equates to about A$18 bln NPAT. Therefore BHP is earning about 21% of its market cap in profit.

While commodity prices have retreated from their May 2006 highs, there is no indication at this stage that the commodities boom is over. Prices are still well above long term averages, and BHP’s well diversified suite of assets mean it will be insulated from movements in any one commodity price.