Mining heavyweight BHP Billiton Limited's (ASX: BHP) shares have been smashed in today's session, sinking as much as 4.7% to $37.83 before recovering slightly. Shares are now priced at $38.11.
The plunge follows the miner's full-year earnings release after the market's close yesterday. While it was a very impressive set of results, with full-year net profit up 23% at US$13.8 billion and earnings up 11.5% at US$23.4 billion, there were three major factors the market is likely reacting to negatively today.
Firstly, it was widely expected BHP's net debt level would fall below US$25 billion as a result of improved productivity and heavily reduced costs. Based on the report, net debt still remains at US$25.8 billion, indicating that Rio Tinto Limited (ASX: RIO) may be performing stronger in that regard.
On that note, investors had also been hoping for an improvement in shareholder returns. It was widely expected that BHP Billiton would announce a share buyback program worth as much as $3 billion regardless of whether net debt fell below the $25 billion target, but the miner did not deliver. In addition, it only increased its final fully franked dividend by 5% to US62 cents.
The lack of a share buyback prompted downgrades from both Credit Suisse and CIMB.
The third issue acting as a major drag on BHP's performance today is confirmation of a spin-off of underperforming assets. It should be noted that the market had been hoping for such an announcement – in fact, investors had pushed shares up strongly over the last week in anticipation of such news. Instead, it is likely the demerger's structure has put off investors.
Overnight, shares in the FTSE-listed BHP Billiton plc (LON: BHP) fell more than 4% on confirmation that both Aussie and UK investors would receive stock in the new entity, yet the entity would be listed only in Australia and South Africa. That means that any UK investors unable to hold international equities would be forced to sell.
Should you buy BHP Billiton?
It is possible that yesterday's announcement will see investors turn their attention towards Rio Tinto which trades on a lower P/E ratio and is also tipped to return additional capital to investors in the near-term. On the other hand, I still prefer BHP's level of diversification and growth pipeline over Rio's – should the shares fall much further, it could be a good opportunity for investors to start a position in the Big Australian.