Jason Beddow, the boss of listed investment company Argo Investments, has voiced concern over the $2.8 billion in write-downs at BHP Billiton last week, saying he fears there may be more to come.
After announcing a 3 per cent fall in Argo's net profit to $167.3 million for the 2012 financial year, Mr Beddow told BusinessDay he would like BHP management, led by chief executive Marius Kloppers, to know that "you need to be a bit prudent".
![''[BHP] need to be a bit prudent'' ... Jason Beddow, Argo Investments.](https://static.ffx.io/images/$width_514%2C$height_771/t_crop_fill/q_62%2Cf_auto/8c17f9d6aeaf539a779bfa8c3149a337e228f9f8)
''[BHP] need to be a bit prudent'' ... Jason Beddow, Argo Investments.Credit: Simon Alekna
Mr Beddow, who estimates his firm's BHP stake at around $260 million, said "it's always a concern when you make an acquisition and less than 12 months later you're taking a write-down on it."
"Unfortunately, the damage has been done in some regards because the writeoff is a sign that you've overpaid for it."
"I guess at the time it probably seemed like a little bit of a left-field transaction for them, a bit of a land grab" he said. "It will be over the longer term that BHP or investors are proven right on whether they overpaid or not. It's a long-life asset."
On Friday BHP announced a $US2.8 billion write-down on the carrying value of its shale gas assets acquired from Chesapeake Energy in February last year for $US4.8 billion.
Mr Beddow said there was "every chance they will have to take [further] write-downs" if spot prices remain at current levels, although he flagged BHP was looking further out on the price curve where pricing was stronger.
"If the forward price reduces over the next 12 months there's a chance" of more write-downs, he said.
Kloppers' future
Asked about speculation concerning Mr Kloppers position at BHP and whether he backed him, Mr Beddow said: "I think so. He's had a fairly tough time with his acquisitions front.
"He's had effectively two shots at Rio [and] Potash, they were moved into an energy acquisition that got (through) but had to write down.
"BHP is a very large company and there's equally other people probably involved and accountable for these sorts of transactions - if you really wanted to point the figure that's what you're paid for in a CEO," he said. "You're paid for responsibility."
Mr Beddow said he backed BHP management, noting that they "had been their own worst enemy with commentary". The market was concerned at the uncertainty around some of its major projects such as Olympic Dam, he said.
BHP chairman Jac Nasser backed management when announcing the write-downs last week.
Markets
Mr Beddow said any meaningful recovery in global equity markets in the short term was unlikely because of the European debt crisis.
"The impact of tough austerity measures in response to unsustainable sovereign debt levels in Europe is pushing many countries into recession and the region is likely to remain a potential source of adverse shocks for some time to come,” Mr Beddow said.
“However, Australia's relative strength compared to other western economies leaves us well placed to weather future economic shocks, with comparatively low unemployment and inflation, and a strong currency,” he said.
“If required, this allows the Reserve Bank room to make additional cuts in interest rates which should stimulate consumer spending and business investment.
“With this background in mind, we remain of the view that for a long-term investor, the Australian equity market is relatively good value.
He said he believed that the reporting season was going to show continued downside surprises and the current year may also disappoint.
"I think overall the expectations for earnings in 2013 are too high," he said.
Result
Argo delivered a 3 per cent fall in net profit to $167.3 million compared with last year.
Reflecting the weaker performance of equity markets over the reporting period, net tangible asset backing per Argo share was $5.50 compared with $6.11 last year.
Argo maintained its fully franked final dividend of 13 cents.
Mr Beddow said the best-performing stocks in the company's portfolio this year were yield stocks such as Telstra, banks, Wesfarmers and Coca Cola, as well as utilities holdings.
"Big mining stocks had a pretty tough time as did energy," he said.
"Everyone's genuinely concerned that projects are going to have cost overruns."