BHP is a safer choice in uncertain times

Mar 30 2009 By Andrew Miller, The Journal

BHP Billiton: We continue to see BHP as the safer choice in mining in uncertain times, thanks to its very strong balance sheet, ongoing progressive dividend Policy and high-quality assets.

Further production cuts are still possible, but relative to peers, we think the group benefits from lower operational and financial leverage. The latest results were at the top end of market expectations, and the company stood out from the pack by delivering on its dividend commitment, raising the interim payment by 41%.

Friends Provident: Friends Provident has proven a strong performer relative to the market in recent months on account of its defensive balance sheet and attractive valuation. The group encountered significant difficulties at the start of 2007, but following a number of strategic reviews, and a new management team, the future now looks brighter.

Compared to its life insurance competitors, the solvency and capital position is much stronger, with very little exposure to corporate bond default or further equity market falls. Last year the group moved its accounting to the new MCEV standard under conservative assumptions, so we expect no surprises on this front. The valuation is undemanding and the overseas division should provide growth opportunities.

Standard chartered: Was a standout performer at its full-year results. Following its rights issue, its capital position looks quite strong, and it was able to add to its capital through improved profits in H2. While Standard Chartered is seeing slowdowns in both its consumer and fast-growing wholesale divisions, we still think its geographic diversity and lack of exposure to the leverage problems in the western economies place it at a fundamental strategic advantage.

We rate the shares as outperform with double-digit total return upside from current levels.

Wood Group: Wood Group’s full-year results highlighted the defensive qualities of the business, and the tone of guidance for the next couple of years was fairly confident. Similar to other oilfield services companies, we expect Wood Group to be negatively affected by the cutback in oil & gas and utility companies’ investment programmes, and margin expansion will probably stall in the medium term.

However, on a relative basis, we continue to believe Wood Group should fare better than peers, offering an attractive combination of operational visibility, growth prospects and low financing risk.

Andrew Miller is regional centre head of Barclays Wealth