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Why BHP Billiton gets the nod over Rio Tinto – blue-chip broker tells all

Monday, October 3, 2016 1:01
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UBS likes the cut of mining giant BHP Billiton plc’s (LON:BLT) jib, repeating its ‘buy’ advice ahead of a meeting with the management of the company’s oil operation on Wednesday.

It has been almost three years since the firm last updated on its conventional and onshore assets – and a lot has changed in that time. The business is the second-largest contributor to profits.

Onshore BHP has curtailed “activity significantly” to “preserve value”, UBS said. It added the business has potential in the medium-term, presumably when the oil price rises well above US$50 a barrel.

Its offshore oil fields, meanwhile, are a “cash-flow generator”; exploration success is likely to be the “key catalyst”, UBS said.

The Swiss bank expects investment to be US$800mln in 2017 with reserves depleting.

Repeating its ‘buy’, UBS said it likes the company’s free cash-flow yield and the balance of risk and reward. It gets the nod over Rio Tinto PLC (LON:RIO) on that basis.

However its £12 a share target price doesn’t leave much room for growth. BHP opened £11.60.


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