The BHP Group Ltd (ASX: BHP) share price outperformed the market on Tuesday.
The mining giant's shares ended the day over 1% higher at $41.35. This compares favourably to a 0.15% decline by the ASX 200 index.
The catalyst for this outperformance was the release of a robust full year result from the Big Australian.
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What are analysts saying about the results?
The good news is that analysts at Goldman Sachs have responded very positively to the miner's results release and believe big returns could be on the cards for the BHP share price.
Commenting on its full year results, the broker said:
BHP reported a slightly better FY24 result with underlying EBITDA/NPAT of US$29.0bn/US$13.7bn, +1%/+5% vs. our estimates of US$28.8bn/US$13.0bn and above Visible Alpha consensus of US$28.7bn/US$13.3bn. The copper division reported EBITDA of US$8.6bn, well above our US$7.7bn estimate, on a strong cost beat at South Australia copper and revenue beat at Escondida in Chile.
The final div of US74c (53% payout) was ahead of our US70c estimate (55% payout). Net debt of US$9.1bn was below our US$9.8bn estimate on period end revaluation of FX contracts as cash flow (including working capital was in-line).
Where next for the BHP share price?
In response to the results, Goldman Sachs has reiterated its buy rating on the Big Australian's shares with an improved price target of $49.10.
Based on the current BHP share price of $41.35, this implies potential upside of almost 19% for investors over the next 12 months.
In addition, the broker is forecasting a fully franked dividend yield of 4.2% in FY 2025. This boosts the total potential return to approximately 23%.
According to the note, Goldman believes that BHP's shares are good value at current levels. It said:
BHP is currently trading at ~5.5x NTM EBITDA (25-yr average EV/EBITDA of 6.6x), a premium to RIO on ~4.5x; and at 0.85xNAV vs RIO at 0.75x NAV. Over the last 10 years, BHP has traded at a ~0.5x premium to global mining peers. We believe this premium can be partly maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore where BHP maintains superior FCF/t vs. peers).
Goldman also likes BHP due to its (growing) exposure to copper. It adds:
We remain bullish on copper and expect BHP to generate US$7.7bn in copper EBITDA in FY24 (30% of EBITDA) and increasing to US$11.7bn in FY25 (42% of EBITDA) due to ongoing supply side challenges and increasing demand.
We think BHP has a competitive edge in copper heap leaching and believe it can potentially fill ~200ktpa of spare cathode capacity by 2030 and possibly the full ~315ktpa spare capacity by 2035.
All in all, the broker thinks this makes BHP a great option for investors looking for exposure to the mining sector.
