BHP Billiton disappoints the market but investors are not to be alarmed

 

“The market was a little disappointed with BHP Billiton’s results, as the company reported a 5.5% fall in first half profit, which was slightly below consensus. Declines were a result of persistent problems with the European financial crisis, which has led to general weakness in manufacturing and construction across a number of the company’s key markets. We expect this to continue throughout 2012 as we look to be no closer to a sustainable solution to resolve the problems in Europe, as the potential risk of default has risen significantly recently.

 

“We are also concerned over demand from China, as its economy could suffer a hard landing. However, any loosening of monetary policy by the Chinese government could make quite a difference. We suspect underlying prices for commodities to remain very volatile in light of these issues.

 

“BHP Billiton’s report also noted the company’s gearing ratio had increased by 25%, as a result of the recent acquisition of Petrohawak Energy Corporation. Growth seeking investors will be pleased to hear the company believes spending on energy could make it a million barrel oil equivalent producer in less than five years.   

 

“Investors may have concerns over the impact of the Glencore and Xstarta merger deal on BHP Billiton. However the company has said it does not expect to change its strategy in light of the recent talks. 

 

“We continue to recommend investors ‘buy’ BHP Billiton as we believe that in the longer term the company remains in a strong position to grow its profits when sentiment becomes more positive. We would suggest investors seeking growth opportunities to drip feed into the stock on any weakness in the share price.”