BHP a safer choice in troubled times

Jun 1 2009 by Iain Laing, The Journal

BHP Billiton

We continue to see BHP as the safer choice in mining in still uncertain times. It offers good exposure to rising commodity prices, high-quality assets and a superior operational track record. With the lowest gearing among the larger-cap miners, we believe the company will have better optionality for growth investments, including in new commodities, while continuing to offer the highest yield in the sector. We are confident management will remain disciplined and that execution risk is relatively low.

N Brown

N Brown now trades at a 25% discount to the sector on next year's calendarised estimates. This is in spite of it being one of the companies in the sector which looks more likely to achieve positive earnings growth over the next two years, due to its growing niche customer base. From the top-line perspective, N Brown benefits from its focus on oversized and older customers. Although both customer segments may not carry less financial risk than other areas of the market, both have proved to be more loyal in the recent past.

Wood Group

Wood Group's recent interim management statement confirmed operational performance was in line with expectations. We expect the group to be negatively impacted by the capex reduction of oil & gas companies, meaning that margins are likely to stall this year. However, we continue to believe the company is better positioned and has better growth prospects than other oilfield services companies. Long-term contracts also offer better visibility on profits and financing risk remains low.

WPP

We believe risk appetite is improving, with the market willing to look through the recession and towards a recovery. In this environment, despite short-term weakness in the advertising market, WPP should outperform. 2009 is a lower growth year for advertising within the quadrennial cycle and the recession has reduced rates further, but 2010 should be better. We expect WPP to outperform its advertising peers, due to good geographic exposure and leading positions in a number of disciplines, plus synergies from the integration of TNS, which should also support profit through the downturn.

Andrew J Miller is director of Barclays Wealth in Newcastle