my ten minute view of bhp - any challenges???

i think we will see $24 before we see $50

40% drop in coal and iron ore revenues coming soon.

iron ore and coal comprise of a very large part of BHP's earnings

share prices follow earnings and not charts

in 2010, BHP will not earn $1.89 EPS per half year

In first half 2009, BHP earned EBIT of $4,143m from iron and $4,195m from coal, representing 70% of its EBIT.



To be generous, if we reduce petroleum revenue by 40%, iron ore revenue by 35%, coal revenue by 40% and based metals revenue by 25%, half yearly revenue comes to $21,456m.

Using the same cost base as last half, namely, $17,881m, EBIT for one-half = US$3,575 or US$7,150m annually.

I cannot work out the tax but last half it was around 61% so NPAT = US$4,361 or AUS$5,815 on exchange rate of 75 cents.

Divide by 5,586m shares on issue = AUS$1.04 EPS for the whole year.

Clearly some costs will be cut, such as closing Ravensthorpe and lower wages for employees.

If we reduce expenses by 15%, annual EBIT = US$12,514.

NPAT for 2010 = US$7,508, or AUS$10,011m.

EPS for 2010 = $1.80, back to levels of year ending 30 June 2006.

Place on PE ratio of 12 = share price target = $21.50.

Up the EPS to $2 and share price target = $24.00