BHP forecasts hit share price

A slightly better than expected September-quarter production report failed to break the sideways drift in the share price. Yesterday the stock closed at $36.44, or 4.2 per cent shy of its price at the start of August. The broader market is up 5.7 per cent in the same period.

The lack of oomph in BHP's share price performance Rio is up by 3.8 per cent is despite BHP's retiring chairman, Don Argus, talking up the outlook for commodities. He stopped short of using the 2003-08 commodity boom terminology of things being "stronger for longer". But he might as well have, given he recently told a packed Melbourne Mining Club luncheon that he believed "we stand at the threshold of an era of unprecedented growth due to demand generated by China and, in the future, India".

But judging by market expectations for BHP's near-term profit performance, the era of unprecedented growth will not start to have an effect until well into 2011. And by extension, BHP could be that far off from challenging its record share price of $49.55 set in May 2008.

A survey of profit estimates from six leading brokers all after the release of BHP's September-quarter production report raises the prospect that BHP could post a profit reduction for 2010.

On an average basis, the outlook is for a profit in 2010 of $US10.17 billion ($A11.23 billion), down from last year's $US10.72 result and well below the record $US15.3 billion posted in the boom 2008 financial year.

Profit estimates for 2010 range from $US9.68 billion to $US12.15 billion, with the difference due to commodity and currency assumptions used by broking firms.

Where there is agreement is that BHP has yet to reap the full benefit of its massive investment in oil/gas projects in the Gulf of Mexico and in Pilbara iron ore. The full benefit of those new developments and expansions, along with relatively modest commodity price assumptions, sees broker forecasts for the group's profit pick up to an average of $US14.83 billion in 2011 and $US16.77 billion in 2012.

But even then, the market is not expecting BHP to be showering shareholders with dividends. Last year's dividend of US82? is, on average, expected to rise to about US93? in 2012. BHP could nevertheless sweeten things for shareholders through a share buyback.

A Macquarie report on BHP after the release of its September-quarter production report summed up BHP's profit outlook best. It talked about a "reversion to sustainable earnings, not peak cycle earnings".

Macquarie said the bulk commodities businesses of iron and coal would underwrite BHP's near-term earnings.