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BHP Billiton and Encompasses a Liam Fitzpatrick Deep Dive on the Assets in Conjunction with Our Most Recent Commodity Outlook Research Analyst Reports

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BHP Billiton and Encompasses a Liam Fitzpatrick Deep Dive on the Assets in Conjunction with Our Most Recent Commodity Outlook Research Analyst Reports P, ovidecl for the exclusive use of Sreemathy Ganesasubramanya111a t DB Employee on 2018-10-03 TOS:05 >00:00 DO NOT REDISTRIBUTE Deutsche Bank Markets Research Rating Company Date IZI Hold BHP 1 October 2018 Company Update Australasia Australia Reuters Bloomberg Exchange Ticker Price at 27 Sep 2018 34.48 M&M - Diversified BHP.AX BHP AU ASX BHP Price target - 12mth 34.50 Resources 52 week range (AUD) 35.08 - 25.58 ALL ORDINARIES 6,308 Compendium Valuation & Risks James Gurry Simplifying but far from simple Research Analyst A cash-back offer for buyers, but is the oil price and the rate of change +61-3-9270-4104 slowing? This report summarizes our published view on BHP Billiton and encompasses a Liam Fitzpatrick deep dive on the assets in conjunction with our most recent commodity outlook Research Analyst reports. +44-207-541-3233 We recently downgraded BHP to HOLD recognising that a large potential Tim Hoff off-market buyback is on offer in the coming months but much of the out Research Analyst performance vs. peers has been driven by the oil price, in our view, and while +61-2-8258-1424 we are not negative on oil, the best gains are probably behind us but we are not negative on the stock. j Price/price relative Another South 32 in here? We see some assets likely to receive less attention under the renewed "Competition for capital" (these being: Nickel West, Australian oil/gas assets, tax loss carrying energy coal). Together they generate ~$4bn of annual EBITDA with up to $600m of annual capex (current forecasts). We think Jan '17 Jul '17 Jen '18 Jul '18 they hold less strategic importance to the simplified BHP and have an NPV of > - BHP ALL ORDINARIES (Rebased) $15bn (DBe), at >4x EBITDA an EV of $16bn, both these valuations far above net book value near $5bn. Performance (%) 1m 3m 12m Absolute 5.5 5.7 33.8 ALL ORDINARIES -0.8 0.2 10.1 The end of the capital preservation era could also be an opportunity to revisit Source: Deutsche Bank I executive-level change much like FMG (CEO) and Rio Tinto (CFO) have in recent months. jKey indicators (FY1) ROE(%) 17.8 ROA(%) 18.8 Away from macro economic moves in commodity markets, catalysts include the Net debt/equity (%) 15.0 return of the $1 0bn asset sale proceeds from shale asset sale, BHP has scheduled Book value/share (USO) 9.75 a market update on this topic 21-Nov-20118. Price/book (x) 2.6 Net interest cover (x) 21.6 EBIT margin (%) 38.4 Source: Deutsche Bank I Deutsche Bank AG/Sydney · · h · d · · Distributed on: 30/09/2018 19:30:00 GMT D eutsc h e Ban k d oes an d see k S to d O b us mess Wit companies covere In its rescu, "" , ...,.,v ....... " ........ , " ......... ,v,..., vOOVUOU ..,.., aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 091/04/2018. Provided for the exclusive use of Sreernathy Ganesasubrarnanyam at DB Employee on 2018-10-03T05:05>00:00 DO NOT REDISTRIBUTE 1 October 2018 M&M - Diversified Resources BHP IZI j Figure 1: BHP-RIO buy back history 200 ( Aug-2018 (RIO): US$1.75bn on­ market buy-back completed; US$2.2bn lo be 160 bought back Nov-2007 (BHP) : 1.IS$2Jbnol l• IrMlk ol buy•bacl< Aug-2010 (RIO) ; I Fob•2018 (RIO): I\ USS9.2bnboy •ba.tk (~r:~015 (RIO): US$ 1. Obnbuj •boc, 120 !a.nnauncod i US$0.4bn otf-markel IOMOun<od !, _buy-back Mar-2007(BHP) ~ \ US$28bnofl• markelbuv•'oac 80 \ t 40 - BHP share price (A$) - RIO share price (A$) Source:Blaomberg LP, Company dara l Figure 2: BHP buy-back scenario Units 2011 FY19scenario Asset sale proceeds net of tax USSbn 6.3 10.5 Portion of promised capital return for Ltd buyback % 100% 60% Potential buyback amount A$bn 6.0 8.8 AUD/USD exchange rate 0.95 0.72 Market price A$ 47.50 31.48 Buy-back discount (subject to ATO approval) % 14.0% 12.0% Buy-back price A$ 40.85 27.70 Scale back % 78.3% Likely high BHP BIiiiton Ltd shares bought back m 147.0 316.7 % of BHP Billtion Group issued capital % 2.7% 5.9% 1% at BHP Billt Ion Ltd 1ssued capita l % 4.4% 9.9% Capital component A$ 0.28 Additional capital component A$ 9.03 Fully franked dividend component A$ 40.57 Tax value A$ 49.88 Group EBITDA lost on US Shale divestment ussm 928 Group EBITDAlost on US Shale divestment % 3.8% On market Pie US$bn 4.2 On market Pie GBP 3.2 FX GBP:USD 1.31 Share price GBP 15.3 Shares potentially repurchased 208.5 % of Pie shares 10% Total shares off and on market million 525.2 Total shares off and on market % 10% Source: Company data• 2011 Buyback , 08 estimates for FY19. Page 2 Deutsche Bank AG/Sydney Provided for t11eex clusive use of Sreemathy Gane sasubramanyam at DB Employ ee on 2018-10-03 T05:05, 00:00 DO NOT REDISTR IBUT E 1 October 2018 M&M - Diversified Resources BHP [Z] Figure 3: Potential Divestiture Assets Figure 4: Potential Valuation Scenarios of BHP Energy Australia A1ut , l(IIIOolllU\,1111 (,1~1;f1Jis,i ,J t U')t t"fl(I I 1u,1 fU C-1 20,000 ~\I\IIA1I 1,016 975 m Nunll W~ Shelf 1,336 1,372 59 "' ~S.Ce~ PvreneeJ,MlnervaandAl.11eria m 26 129 Hi"W (M •,rt 10,t 836 "' 1()0 111 15,000 N"..:bt'Wl!-u 568 "'822 160 Tow ~w Dhaduu~ uu ... .,.,"' 10,000 5,000 0 NPV EV (4x EBITDA) Book value • Nickel West • NSW Energy coal ■ Macedon, Pyrenees, Minerva and Algeria • North West Shelf • Bass strait Source: Deutsche Bank Source: Deutsche Bank j Figure 5: BHP NPV valuation j Figure 6: NPV split by operations US$m US$/sh A$/sh Iron ore Iron ore 69,242 14.22 19.22 49% Base Metals (Copper) 25,325 5.20 7.03 Petroleum 18,481 3.80 5.13 Nickel West Met Coal 18,775 3.86 5,21 Potash - Jansen (capex value) 2,800 0.58 0.78 (gross) Energy Coal (N5W & Columbia) 5,091 1.05 1.41 2% Nickel West (gross) 2,511 0.52 0.70 Energy Coal Samarco -1,800 -0.37 -0.50 (NSW& Group & Unallocated -936 -0.19 -0.26 Columbia) Base Metals Provisions and rehab -8,200 -1.68 -2.28 3% Net (debt) /ca sh -7,952 -1.63 -2.10 (Copper) Potash - Jansen TOTAL 123,337 25.33 34.34 18% (capex value) Met Coal Petroleum 2% 13% 13% Source : Deutsche Bank eslimarss Source: Deutsche Bank IFore casts and ratios Year End Jun 30 2017A 2018A 2019E 2020E 2021E Sales (USDm) 38,285 43,638 44,133 44,683 44,195 EBITDA (USDm) 20,296 20,262 23,724 24,273 23,090 Net Profit (USDm) 6,732 8,933 9,189 9,701 9,011 EPS (USD) 1.26 1.67 1.88 2.08 2.02 EPS Growth( %) 452.6 32.7 12.4 10.4 -2.7 PER (x) 14.0 13.3 13.3 12.0 12.4 PE Relative (x) EV/EBITDA (x) 6.0 6.8 5.8 5.6 5.9 DPS (net) (USD) 0.83 1.18 1.28 1.23 1.20 Yield (net) (%) 4.7 5.3 5.1 4.9 4.8 Franking (%) 100 100 100 100 100 Source: Deutsche Bank osrlm{IUJ:!l.co mp.,ny,dor,, Deutsche Bank AG/Sydney Page 3 Provirled for Ille exclusive u se o f Sree,na tliy GanesasufJramc1nyam ,ll DB Empl oyee on 2018-10 -03T05:05>00:00 D O N O T REDISTRIBUTE 1 October 2018 M&M - Diversified Resources BHP IZI IFigure 7: BHP financial summary ifXJCOMMobme:s(Noml,ioQ f'Y17A FY18A FY1s/! FY2:0f FY211' f.'i:tiF IMerket bate Ltd Plc Total AUDUSD 0.75 0,78 0.74 0.74 0.74 0.74 Ticker SHP,AX BLT,L Oif. e,.,nt IUSS/bbO 61 64 n 72 69 70 IShnl•Jjl>Cfl - fl 34.48 16.62 011- WTf IUS$/bbll 49 59 70 64 60 63 SN!lfQ-,, co llJSO OQ'UIYl:lklPO 2502 2I.e:l Coppert USSllbl 2.45 3.06 3.16 3.45 3.48 3.38 Price difference 14% -13% Iron ore • lump (US$/tl - CIF 76 80 74 68 6B 69 Shares on issue Im) 3,212 2,112 5,324 Irono"' • l1neaIUSS/1) - CIF 88 67 82 68 68 158 % of shares s plit ltd v Pie 60% 40 % Coking oool IUSS/1) 193 197 176 160 148 146 Soot FXCI\UO .USDI (USO.GBPI 0.73 1.32 Thermal coal (USM) - contract 67 90 102 89 86 80 IM>lk,u C.o IUSD<I\I 90,377 06.230 126.007 US natural gaa IUSS,lmmBtu) 3.04 2.88 2.86 3.DB 3.20 3.27 1tiiof rnkl Cllp l j;}U G3'1o 37% IKEl:1'.INAHCIAI..MSBICS INPV(HD181 USSM USS/sh A$/sh UnderlyingEominge IUSSMI 6,732 8.833 8,189 9,701 9,011 9,848 Iron ore 69,242 14,22 19.22 EPS IUScl 126 167 188 208 202 232 Base Meta ls !Copper! 25,325 5 20 7.03 EPS Change(%) 5 0 0 (DI 0 Petroleum 18.481 3.80 5.
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