TSX Commentary

BHP Billiton plc (LSE: BLT) – H1 F2010 Earnings Preview
Outperform, Average Risk
RBC CM is bumping its H1 F2010 earnings per share forecast from $0.70/sh to $0.87/sh, slightly ahead of consensus at $0.85/sh, mainly on the back of strong production and commodity prices in the half-year. RBC CM’s Cash flow per share estimate increases from $1.20/sh to $1.41, compared with consensus at $1.20/sh. BHP continues to have the strongest balance sheet of the major diversified miners. RBC CM is looking for a net debt-to-total capital ratio of 10% at December 31, 2009. RBC CM will be looking for any detail from the company surrounding the proposed new Australian tax hikes, as well as any update on regulatory review of the proposed iron ore joint venture with Rio Tinto. RBC CM’s £23/sh one-year target price for BHP Billiton remains unchanged. RBC CM’s target price is derived using the average of NAV and EPS multiple valuations; it continues to use a 1.0x multiple to NAV applied to an average of 2010 and 2011 NAV estimates. RBC CM’s 17.0x multiple on 2011E earnings reflects generally improving market multiples and BHP’s track record of trading at a premium relative to its peers. These multiples are towards the middle of historical trading rages, but could expand in the event of a sustained recovery in the diversified miners’ space.