You probably wouldn’t believe it if someone told you that Perth-based retailing specialist Wesfarmers was bigger than global resources leader BHP Billiton, but that was the situation last week on the Australian Securities Exchange as the company led by Richard Goyder quietly slipped past the global mining giant.
You probably wouldn’t believe it if someone told you that Perth-based retailing specialist Wesfarmers was bigger than global resources leader BHP Billiton, but that was the situation last week on the Australian Securities Exchange as the company led by Richard Goyder quietly slipped past the global mining giant.
Most market observers missed it because by Friday the natural order had been restored, with BHP Billiton staging a late revival to lift one notch above Wesfarmers as measured by market value.
Another reason for the incident being overlooked was because not all of BHP Billiton’s shares are listed on the Australian market. The company has a separate share register and listing for British investors on the London Stock Exchange.
From a strictly Australian perspective, however, what happened was remarkable and can be treated seriously, because most of the British investors are on the BHP Billiton share register as a result of the 2001 takeover of London-based Billiton by BHP.
What last week’s changeover in pecking order on the ASX revealed was the severity of the decline in the resources sector, and the migration of investors to the relative safety of food and hardware retailing.
The numbers tell the story. With 3.21 billion shares on the Australian component of BHP Billiton’s share register, and a closing share price on Friday of $15.26, the Australian shares of the big minerals and oil producer were valued on the ASX at $49 billion.
Wesfarmers, with 1.13 billion shares on issue and a Friday closing price of $41.77, was valued at $47 billion.
On Thursday it was a different story, as BHP Billiton fell to a 12-month low of $14.06, cutting the value of its Australian-listed shares to $45.1 billion.
The low point for Wesfarmers on the same day was $40.64, at which point the owner of Coles and Bunnings, and soon to be owner of a British hardware business, was valued at $45.9 billion.
At their respective high and low points, the gap between BHP Billiton and Wesfarmers blew out to almost $2 billion as Wesfarmers briefly seized the title of seventh biggest ASX-listed company and BHP Billiton slipped to eighth.
By the close of trading on Friday Wesfarmers was back to eighth and BHP Billiton had reclaimed seventh spot on the market-value league table.
Like all exercises in numbers there is a ‘Disraeli’ factor at work in this one, if you consider the former British prime minister’s famous comment about ‘lies, damned lies, and statistics’.
The fact that BHP Billiton keeps a separate share register for its London listing is important, and when the £13.7 billion ($A28.5 billion) value of those share is added to its Australian shares, BHP Billiton has a total market value of around $A78 billion.
But whether BHP Billiton is treated as a $49 billion company or a $77 billion company, the point is that the value of the business has collapsed over the past 12 months to a size roughly half what it was less than two years ago.
As a proxy for the decline of the Australian resources sector the fall of BHP Billiton is a useful guide, while the rise of Wesfarmers is an example of how a well-run business can continue to grow even in difficult conditions.
Another point worth noting in the decline of BHP Billiton, a business that once marketed itself as ‘The Big Australian’, is the fact that, relative to other ASX-listed companies, it is no longer big and risks being overtaken by archrival Rio Tinto.
Like BHP Billiton, Rio Tinto keeps two share registers – one for its Australian listing and one for London, with the British register bigger than that in Australia.
Last week, Rio Tinto’s 424.2 million Australia-listed shares closed at $39.65, valuing the business on the ASX at $16.8 billion. In London, Rio Tinto’s closing share price of £16.53 ($A34.5) valued the British component of the company at £23 billion ($A48 billion).
When the Australian and British arms of Rio Tinto are combined it is a business with a global stock market value of $64.8 billion, $10 billion less than BHP Billiton; a relatively modest difference given that BHP Billiton was once double the value of Rio Tinto.
The stock market value of resources-exposed companies rise and fall with commodity prices, but the decline of BHP Billiton appears to have as much to do with the way management has directed the business into a series of low growth (or no growth) industries.
A rise in oil, iron ore, coal or copper prices would restore BHP Billiton’s fortunes; but until then the company risks slipping further down the corporate pecking order, further annoying its shareholders and piling pressure on management to do more than wait for a commodity revival.
