BHP Group Ltd (ASX: BHP) shares were out of form in August.
During the month, the mining giant's shares lost 3.6% of their value.
This compares to a flat performance from the ASX 200 index for the period.
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Why did BHP shares underperform?
Investors were hitting the sell button last month after the iron ore price came under pressure. This was driven by concerns over demand in China due to its stricken property sector.
It wasn't just BHP shares that were falling. Fortescue Ltd (ASX: FMG) and Rio Tinto Ltd (ASX: RIO) shares fell 3% and 5%, respectively.
This news offset the release of a relatively strong full year result from BHP late in the month.
In case you missed it, BHP posted a 3% increase in revenue to US$55.7 billion for FY 2024 thanks to its iron ore and copper operations. They delivered higher volumes and average realised prices compared to a year earlier.
BHP reported record production at WAIO, Spence and Carrapateena, and the highest production in four years at Escondida. Management also revealed that the WAIO operation extended its lead as the lowest cost major iron ore producer in the world.
This underpinned a 2% increase in underlying attributable profit to US$13.7 billion and allowed the BHP board to declare fully franked dividends of US$1.46 per share for FY 2024, which was down 14% year on year but in line with consensus estimates.
Time to buy?
Analysts at Goldman Sachs believe that August's weakness is September's opportunity.
The broker currently has a buy rating and price target of $49.10 on the Big Australian's shares. Based on its current share price of $40.77, this implies potential upside of 20% for investors over the next 12 months. The broker commented:
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).
Over at Morgans, its analysts have put an add rating and $48.30 price target on BHP's shares. This suggests that upside of 18.5% is possible from current levels. It said:
Another strong result from BHP, posting an FY24 EBITDA margin of 54%, close to its decade-average of 55% (10 percentage points above its next closest peer). Strong opex performance, with earnings coming in slightly ahead with a final dividend of US74 cents, for an annualised dividend yield of 5.6% fully franked. We maintain our ADD rating.
