bhp headed for 17 with conservative pe ratio, page-5

Ok I think David got a little confused with the numbers.
I'll do a fewd FY10 PE and a fwd FY11 PE using EPS from a broker. (I can't be bothered looking up consensus right now but if people really want it i can do it later)

Just a note: historical PE isn't really helpful in telling us where things are going except as a comparison.

Notes:

1. Figures are in USD, i've converted them at spot of 0.83c. To do this properly you'd take the fwd curve and apply, but this is just back of the envolop stuff.

2. All figures are in AUD unless otherwise noted.

3. I used the lastest Macquarie forecasts

FY10
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EPS: 1.5608 USD
14x: 26.3
15x: 28.2
16x: 30.1
17x: 32
18x: 33.8
19x: 35.7
20x: 37.6
21x: 39.5
22x: 41.4

FY11
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EPS: 2.1767 USD
14x: 36.7
15x: 39.3
16x: 42
17x: 44.6
18x: 47.2
19x: 49.8
20x: 52.5
21x: 55.1
22x: 57.7

Now there are plenty of reasons why the market is really places a high PER on BHP for FY10.

1. First it has the lowest earnings risk amoungst all major resource companies in the world: Balance sheet, asset diversification, market capitalisation.

2. The Ltd listing in Australia trades at a 20+% premium to the plc listing in London which means that whole companies market capitalisation actually implies a lower PER then the above figures suggest.

3. The market isn't looking so much at bottom cycle earnings to apply. It is now comfortabel that the economy is recovering so punters are going to look increasingly at "mid-cycle" earnings i.e. what BHP can do in a normalised environment: i.e. FY11. This is a trend with alot of stocks right now.

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Question you have to get your head around is, what is the upside left in the stock. Is there better value elsewhere.