BHP Billiton a 'sell' as weak assets drag, Investec says

LONDON (ShareCast) - BHP Billiton (NYSE: BBL - news) 's third quarter results revealed the weak performance of assets that the mining group will be spinning off into its South32 business, said Investec (LSE: INVP.L - news) . The demerger, which will include a collection of aluminium, coal, nickel, manganese, silver, lead and zinc assets, will cost the company $641m after tax, plus $60m a year for South32 to set itself up for independent life.

Investec said the weakness of the assets in the third quarter results were hidden by the overall good performance of BHP with iron ore production up 20% year-over-year to 58.98m tonnes.

"With shareholder approval of the spin-off due in just over a week, such relative performance has important ramifications for the NewCo, as shareholders in South32 could see, in our view, weaker multiples and therefore potential erosion of shareholder value. This could play into the hands of an acquirer," said analysts Hunter Hillcoat, Marc Elliot and Jeremy Wrathall.

The broker gave the company a 'sell' rating and target price of 1,329p.