BHP Billiton and Persimmon

“Having risen for three trading sessions in a row, the FTSE 100 comes to a grinding halt. Strength in utility and consumer goods companies is not enough to offset weakness in miners, construction companies and financial stocks, leaving the blue chip index trading 0.1% lower at 7,582,” says Russ Mould, Investment Director at AJ Bell.

BHP Billiton

“BHP Billiton, one of the world’s biggest mining companies, looks to be at another major turning point in its life. Having streamlined the business following a cyclical downturn in commodity prices, BHP’s latest results show the benefits of being leaner, as well as an ongoing recovery in prices.

“Volumes have been growing, it is getting more money for the goods it digs up and sells, and capital spending is near a cyclical low. The next phase of its life looks like it will see fairly flat volumes and prices, together with a rise in costs and capital spending.

“This doesn’t look like a suitable point for BHP to start acquiring large-scale rival businesses, even though it is financially in fairly decent shape. Instead, it seems that the FTSE 100 constituent will focus on churning out the profits rather than making any major strategic step forward.

“Indeed, BHP adopts a cautious tone in its results amid concerns about trade wars and protectionism, so it doesn’t seem the ideal moment to be going on a spending spree.

“For investors, it means being paid to wait for an improvement in the commodities landscape. A record dividend at the full year results equates to an approximate 5.5% dividend yield for the year as a whole, which should be viewed as an attractive income stream.

“The market may be slightly disappointed that BHP hasn’t declared a large share buyback like some of its peers in the natural resources industry. However, shareholders will eventually be getting a slice of the $10.8bn proceeds from selling its onshore US business at some point in the future.”

Persimmon

“Housebuilder Persimmon continues to defy gravity with its first half results. Much of the ground covered in today’s release was already featured in a July trading update although margins were slightly better than expected.

“Margins are a key focus for the market, given the housebuilding sector is faced with slowing house price inflation and an increase in build costs.

“The 2.1% year-on-year improvement in Persimmon’s margin is impressive but the increase is just 0.9% on the second half of 2018.

“There also appears to be a subtle shift in the language in the accompanying outlook statement. A year ago words like ‘confident’, ‘strong’ and ‘encouraging’ were thrown around with more abandon.

“Now the emphasis is on ‘good’ levels of interest and a ‘robust’ platform. Nevertheless, the company says it can continue to grow sustainably and can adapt to changes in market conditions. Time will tell.”

These articles are for information purposes only and are not a personal recommendation or advice.