If you're wondering whether BHP Group Ltd (ASX: BHP) shares are good value at $44.47, then it may be worth listening to what Goldman Sachs has to say on the matter.
According to a recent note, its analysts believe a lot of value is on offer with the Big Australian's stock at present.
As a result, it has a buy rating and $49.90 price target on the miner's shares.
But why is it positive on BHP shares? Well, summarised below are four key reasons why the broker thinks investors should be snapping up shares right now.
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4 reasons to buy BHP shares
The first reason the broker is bullish on the mining giant is unsurprisingly its valuation, which is meaningfully lower than historical averages. It explains:
BHP is currently trading at ~5x NTM EBITDA, at a discount to the 25-yr average EV/EBITDA of ~6-7x, but above S32 on ~3x, RIO on ~3.5x, but below FMG on ~6x. BHP is trading at a discount to NAV at 0.9x (A$48.7/sh), in-line with S32 at ~0.9x NAV but at a premium to RIO at ~0.8x NAV. That said, we believe this premium vs. peers can be partly maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore), high returning copper growth, and lower iron ore replacement & decarbonisation capex.
Another reason to be positive on BHP shares is its commodity mix, which the broker believes is well-positioned in the current environment. It adds:
We remain bullish on BHP's commodity mix: With iron ore fundamentals supportive into 2Q23, copper on growing deficits even with global growth risks and metallurgical coal on constrained global supply growth.
Goldman also sees opportunities to create value from the miner's copper pipeline. It said:
We continue to believe BHP's major opportunity (and challenge) is offsetting copper reserve depletion and grade decline in Chile from 2023 through investing in BHP's copper reserves/resources (40Mt/200Mt) which are the largest globally. We include ~US$12bn of copper projects out of the >US$20bn we have identified, delivering 600-700ktpa of copper out of potential ~1.3Mtpa total (including OZL) pre depletion. We now forecast Cu Eq production (CAGR) of around ~2.5% over the decade (up from prior ~1.5%) with the OZL growth projects, which is now broadly in-line with peers RIO, S32 & FMG. RIO still has better near to medium term Cu Eq growth on our estimates (see Exhibit 7).
Finally, cash is king when it comes to investing and BHP is generating bucketloads of the stuff. Goldman commented:
From a FCF/DPS perspective, BHP is trading on a robust NTM FCF/DPS yield of c. 7%/6%, but below Buy-rated RIO (on CL) on 10%/7% & S32 on 13%/10%. We now see BHP's minerals capex increasing to ~US$10.5bn by mid-decade (above peer RIO at ~US$9bn).
