I'm more a small/mid cap guy but I've had to value at BHP for my...

I'm more a small/mid cap guy but I've had to value at BHP for my super fund asset allocations due to its dominance of the index.

The valuation looks pretty good here at this stage of the resource cycle. BHP has underlying EPS of about $2.20 (down about 30% yoy) which places it on a PE of 16. Earnings yield at about 6.25% at a time of record low interest rates, which BHP can tap into.

As far as resource companies go, BHP is almost of the quality of an industrial:) Quality management which is determined to work the assets hard, maximise cashflow and careful CapX spend. Highly diversified, BHP use of capital over the last 10 years or so has been exceptional as judged by the return on capital ratios and BHP's somewhat incredible gross profit margins.

Those particular metrics are a story about the past but there is no real sign that the above average demand for resources has diminished (eg China story)......and the resilient iron ore price and the reserve's attempts to kill the currency, demonstrate the real potential for resource companies to extract ongoing high prices for the minerals pound for pound.....BHP of course is doing all it can in leading the industry in limiting new resource supply going to market and divesting assets.

Anyway, all this is to say that BHP is perhaps the most scrutinized valuation on the ASX......and it looks fairly valued........but there may be potential for undervaluation as the Aussie $ falls and current management's focus on 'cash on cash' returns produces above average cash realisation and compounding of investment returns (eg. compared with high CapX spending for long term payoffs)...It is now clear, that current management is determine to 'milk' the cash from what is an exceptional and diverse suite of resource assets.