BHP Shareholders Vote For Big Buybacks

  • Oct 10, 2018 AEDT
  • Team Kalkine
BHP Shareholders Vote For Big Buybacks

Headed by chief executive Andrew Mackenzie, BHP Billiton Limited, has about $US10 billion to return to shareholders. The question is in what form the returns will come. UBS analysts have gone to market with the same question, as BHP asks shareholders how they want to see the company's $US10 billion capital war chest returned.

For BHP’s Australian-listed Ltd shares, an on-market purchase of the UK-listed Plc stock, or dividends, the broker asked institutional investors if they would prefer to see the money returned via an off-market buyback. With BHP 's dual listed structure and tax, a big part of the equation, it's a complicated question. But UBS reckons it found its distinguished favorite.  

UBS told clients on Wednesday morning, “Predominantly an off-market buy-back of Ltd shares given it can be done quickly, the tour overwhelmingly (60-80%) found investors in favor of a buy-back, while some preferred on-market in Plc as they thought it would be supportive for the stock”.

Historically buy-backs are only ever done at share price highs as seen by the fact that only 10-20% (dependent on region) preferred a special dividend. Generally, 10% preferred a combination of both special dividend and buy-back. Given the BHP's desire as suspected to keep all shareholders happy and treated equally, the constraints around buying back Ltd shares (10% of mkt cap on a rolling 12-mth basis) it could be seen that a combination of a ~US$5bn off-market buy-back, a ~US$2bn special dividend and a ~US$3bn on-market buy-back of Plc stock.

The company generated over US$12 billion of free cash flow for the second consecutive year, this strong cash generation gives them the flexibility in how to balance debt reduction, consistent with their strict Capital Allocation Framework, investment in projects and cash returns to shareholders.

After BHP  finalized the sale of its US shale assets, the $US10 billion-odd war chest comes. BHP has been on a deliberate path to maximize cash flow, maintain capital discipline and increase value and returns to our shareholder. In FY2018, solid operating performance, combined with high commodity prices, saw them achieve a strong set of results.

This year, the company returned US$6.3 billion to shareholders and announced our highest ever final dividend of 63 US cents per share. A diversified portfolio of tier one assets and, more importantly a team of talented people made these returns possible. BHP has a highly capable team who have made the work methods fit-for-purpose.

In particular in conventional oil, copper and coal the company has a pipeline of potential growth projects that could create significant shareholder value over the long term. This includes the Spence Growth Option, the Mad Dog Phase 2 project, which has the potential to produce up to 140,000 gross barrels of crude oil per day.

Total shareholder return (TSR) combines both movements in share prices and dividends paid, it shows the total return to the shareholder during the financial year. BHP Billiton Limited’s share was trading at a market price of $34.720 which is near its 52-week high, it has seen a performance change of 30.38% over the past 12 months.

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