3 brokers weigh in on BHP's March quarter: Record iron ore but nickel and copper output slumps
- BHP's March quarter production update had mixed results, with solid iron ore production offset by softer copper and coal performance
- BHP share are down more than 6% in the last four sessions
- Post results, major brokers reiterated their previous ratings and price targets
BHP (ASX: BHP) posted its March quarter production update last Friday, which yielded a mixed reaction from analysts as solid iron ore production was offset by softer copper and coal division performance.
Shares in the mining giant have fallen around 6.7% in the last four sessions, largely due to a sharp pullback in iron ore prices. Benchmark Singapore iron ore futures are down almost 11% since last Thursday to US$105.8 a tonne amid subdued buying interest from steel mills and higher Chinese port inventories.
Iron ore futures (Source: TradingView)
A mixed March quarter
Iron ore production was unchanged year-on-year for the nine months to 31 March 2023 at 191.7 million tonnes and in-line with analyst expectations. But that was probably the only positive takeaway as copper, nickel and metallurgical coal production all came in below expectations. In summary:
Copper production faced geotech issues at Escondida and lower volumes from Olympic Dam
Met coal production is recovering but production remains at the low end of guidance
Nickel guidance was downgraded due to heavy rainfall
Brokers ratings: Macquarie, Citi and Morgan Stanley
All three brokers reiterated previous ratings and price targets. The March quarter and guidance was generally viewed as in-line with expectations.
Macquarie retained an OUTPERFORM rating with a $52.00 target price
Citi reiterated a NEUTRAL rating with a $43.00 target price
Morgan Stanley retained EQUAL-WEIGHT rating with a $41.35 target price
More broadly speaking, across 26 sell-side ratings:
Buy 35%
Hold 46%
Sell 19%
After Friday, the average target price was unchanged at $47.28
Some key comments from the three major brokers include:
Macquarie: “The completion of the OZ Minerals acquisition presents the opportunity for BHP to redefine the production outlook for Olympic Dam and Nickel West, and this presents upside risk to our base case earnings forecasts and valuation for BHP.”
Macquarie: “The stock is trading on an FY24 free cash flow yield of 11%, rising to 13% at spot prices.”
CitBHP 12i: “Copper is now 29% of our DCF with iron ore 55%; and we expect China steel production cuts to pressure iron ore prices in 2H CY23.”
Morgan Stanley: “We remain equal-weight and prefer Rio Tinto, with near-term risks around Samarco provisions.”
BHP 12-month price chart (Source: Market Index)