LONDON (ShareCast) - (Sharecast News) - Analysts at Deutsche Bank lowered their target price on mining giant BHP from 2,400.0p to 2,250.0p on Tuesday following the group's recent petroleum exit.
Deutsche Bank noted that BHP has now completed its third phase of simplification, following the S32 spin out in 2015 and US Onshore disposal in 2018, leading it to now closely compare the stock to rival Rio Tinto.

"BHP has materially outperformed since 2020 and, with the collapse of the DLC structure in January, trades at a significant premium to RIO Plc despite being of similar size and commodity exposure," said DB.

"This is partly technical (RIO Ltd trades at a >10% premium to Plc), but also due to solid operational performance, pricing momentum (coking coal), and potential for a record dividend in August."

In contrast, the German bank said Rio Tinto had been impacted by challenges within its iron ore business and senior management turnover following the Juukaan Gorge incident in 2020.

However, DB still believes BHP's valuation to be "relatively full" and reiterated its 'hold' rating on the stock.

"Under our 2023 base case, BHP is trading on a ~7.5% FCFy and 6.2x EV/EBITDA, more than a 20% premium to RIO on ~10% and 4.3x. Spot multiples are closer due to high coking coal prices," said the analysts.

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