Analysts at Goldman Sachs resumed coverage on shares of BHP in a note issued to investors on Wednesday. The brokerage set a “buy” rating on the mining giant’s stock, with a target price of $51.20, $5 above yesterday's close.
The note reads, "We reinstate BHP with a Buy rating post the completed oil merger on attractive valuation & free cash flow, and upside from copper growth."
The thesis is long (17 pages for one stock, to be precise) but here is the essential gist of it. Just because it's demerged its oil assets doesn't mean it can't maintain its share price premium and competitive advantage. These are the reasons the team gave:
- Ongoing superior iron ore margins and operating performance
- High returning copper growth/strong position in seaborne coal
- Lower iron ore replacement and decarbonisation CAPEX.
- Higher exposure to lower operating jurisdictions such as Australia and Canada
This view seems to be in some contrast to Macquarie who believes that time is running out for iron ore. Analysts at that broker wouldn’t be surprised to see prices moving higher again in the near term as market focus shifts back to rapidly drawing inventories and underperforming supply. But as always, it comes down to China - no or less stimulus means fewer projects and less iron ore. For its part, ANZ's commodities guru Daniel Hynes argues the iron ore price may have now found a floor but that upside is probably limited.
Yesterday's closing price in Australia was $45.61 while the American depositary shares (ADSs), which represent two BHP shares, closed at US$67.44 equal to approximately AUS$94.19, or AUS$47.09 a share.
