Analysts at Berenberg raised their target price on mining giant BHP from 2,200.0p to 2,300.0p on Tuesday after the firm’s interim results came in better than expectations.
Berenberg said BHP’s recent first-half results surprised to the upside in terms of free cash flow generation, mainly down to tax and working capital, and noted its dividend of $1.50 per share came in ahead of both consensus and its expectation of $1.33.
The German bank said management’s commentary on the two subsequent earnings calls pointed to “good cost control” and the ability to fight against cost inflation and while BHP is unlikely to be immune from cost inflation, it appears that productivity has played a part in keeping unit costs contained.
Capex, on the other hand, appears to be moving “structurally higher” from an industry standpoint, driven by increased decarbonisation spend, with BHP guiding to the upper end of its $2.0bn-4.0bn range to 2030, automation/efficiencies and stripping, which Berenberg expects to increase as mines become more mature.
“We also think that after a period of reduced capex investment in assets due to cost reduction programmes, which is more of an industry-specific theme than a BHP-specific one, maintenance capex will be structurally higher into the medium term (eg Anglo American Platinum is a good case in point here). This has scope to weigh on free cash flow and dividends should there be a tempering of commodity prices,” said the analysts, as they reiterated their ‘hold’ rating on the stock.
