Analysts upgrade BHP after ending Anglo American pursuit
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The news: Analysts upgraded their ratings on BHP after the mining major walked away from its takeover pursuit of Anglo American on Thursday, hours before the negotiation deadline was due to expire.
The numbers: Citi analysts resumed their coverage of BHP after suspending their ratings on the stock, adding a target price of $48.50 and a 'buy' rating. Citi's last target price for BHP was $48.
Morningstar analysts raised their fair value estimate for BHP from $39.50 to $40.50.
BHP shares were down 0.6% to $44.01 by midday AEST, having closed 1.82% lower on Thursday.
The context: Citi analysts noted that Anglo's copper assets offered BHP the opportunity to become the world's largest copper producer and potentially at a price lower than its upcoming investment in Chile's Escondida mine. The miner will now progress with internal growth options, with "modest" production growth to FY30, they said.
However, they consider BHP to have the greatest earnings leverage on copper of the Australian diversified miners, and consensus long-term copper price estimates are now too low.
Meanwhile, Morningstar analysts upgraded their fair value rating on the stock, agreeing with BHP's decision to walk away from the Anglo deal rather than increase the proposal, given it was "already overpaying".
The analysts also expect BHP's adjusted midcycle returns to be "modestly" above the company's cost of capital.
The sources: Citi research, Morningstar research
