BHP Group Ltd (ASX: BHP) shares were in focus on Tuesday when the mining giant released its second quarter and first half update.
As we covered here, BHP's CEO, Mike Henry, revealed that "BHP delivered safe and reliable performance in the first half. Our flagship copper, iron ore and steelmaking coal assets delivered particularly strong production in the period."
However, while its shares were trading higher for much of the session, they eventually closed the day flat.
Is this a buying opportunity for investors? Let's see what one leading broker is saying about BHP now.
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What are brokers saying?
According to a note out of Goldman Sachs, its analysts remain positive on the Big Australian following its "strong" quarterly update. The broker said:
BHP reported a strong Dec Q with production beats vs. GSe in copper (+9%) and iron ore with FY25 production expected to be at the upper end of the guidance range.
Goldman also highlights that BHP is coming close to its debt ceiling. However, the broker feels that the miner should scrap its current limits. It explains:
BHP has guided to net debt of US$11.5-12.5bn at the end of Dec above GSe US$10.8bn, and at the end of FY25 net debt is expected to be around the top end of the US$5-15bn target range following completion of the Filo Mining acquisition (US$2bn investment) and payment of the Samarco settlement obligations.
We reiterate our view that BHP's net debt ceiling appears conservative, as the company is growing EBITDA. In our view, setting balance sheet targets on a leverage ratio rather than net debt basis could be more appropriate as BHP enters a period of organic (and possibly inorganic) growth (for instance, ~1x through the cycle; note 20yr average is ~0.6x, and we see leverage peaking at 0.7x later this decade vs current leverage of 0.5x).
Should you buy?
In response to the update, Goldman has retained its buy rating on BHP's shares with a trimmed price target of $46.80 (from $47.50).
Based on its current share price of $40.61, this implies potential upside of 15% for investors over the next 12 months.
Goldman also expects a 4.1% dividend yield in FY 2025, which stretches the total potential return to over 19%.
Commenting on its buy recommendation, the broker said:
BHP is currently trading at ~5.9x NTM EBITDA, below the 25-yr average EV/EBITDA of 6.5-7x, but at a premium to RIO on ~5.0x; but at ~0.8x NAV which is in-line with RIO at ~0.8x 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).
