Are BHP shares a buy following the miner’s Q2 update?

BHP Group Ltd (ASX: BHP) shares were under pressure on Thursday.

The mining giant’s shares ended the day almost 2% lower at $45.73.

This was driven by the release of a quarterly update which fell a touch short of the market’s expectations.

Should you buy BHP shares?

One leading broker that believes investors should buy the dip is Goldman Sachs.

According to a note, the broker has responded to the Big Australian’s quarterly update by retaining its buy rating with a trimmed price target of $49.40.

Based on its current share price, this implies potential upside of 8% for investors over the next 12 months.

And with Goldman forecasting a 5% dividend yield in FY 2024, the total potential return stretches to 13%.

What did the broker say?

Goldman wasn’t overly impressed with BHP’s quarterly update but has seen enough to remain positive. It said:

BHP reported a slightly weaker than expected Dec Q with copper and met coal production -6%/-9% vs. GSe but iron ore production/shipments of 72.7/70.3Mt were in-line with GSe. FY24 guidance is unchanged except for met coal, which has been cut by ~20% to 23-25Mt. Copper realised pricing for Dec H was +3% vs GSe, iron ore in-line, while coal and nickel pricing were lower than GSe reflecting product realisations and sales timing.

The broker also believes BHP’s shares deserve to trade at a premium to peers due to its superior operations. It adds:

BHP is currently trading at ~6.0x NTM EBITDA, (25-yr average EV/EBITDA of ~6-7x) vs. RIO on ~5.5x. BHP is trading at 0.95x NAV (A$48.6/sh), vs. RIO at ~0.9x 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 where BHP maintains superior FCF/t vs. peers), high returning copper growth, and lower iron ore replacement & decarbonisation capex.

The post Are BHP shares a buy following the miner’s Q2 update? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• BHP shares tumble after missing expectations in second quarter
• 5 things to watch on the ASX 200 on Thursday
• ‘Deteriorating demand’: Should you be worried about your BHP shares in 2024?
• Top brokers name 3 ASX shares to buy next week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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