Deutsche Bank observes BHP is currently investing the lowest amount among the four majors and, along with elevated iron ore prices, this is maintaining cash flows at healthy levels.
Nevertheless, there is a trade-off, BHP will likely deliver the lowest structural operating earnings (EBITDA) growth over the next 3-4 years. The broker anticipates the strategy briefing on May 22 may provide further insights on growth and project priorities.
The company has options in potash, copper and petroleum, although major projects are long dated and will require a step up in investment above the current $8bn ceiling. The broker envisages limited upside for the shares and maintains a Sell rating. Target is $28.
Target price is $28.00.Current Price is $36.63. Difference: ($8.63) – (brackets indicate current price is over target). If BHP meets the Deutsche Bank target it will return approximately -31% (excluding dividends, fees and charges – negative figures indicate an expected loss).