BHP’s December-quarter results outpaced consensus by roughly 4%, although copper and metallurgical coal underperformed by 10% and 6% notes Credit Suisse.
Management guided to lower West Australian iron-ore costs, lower copper production and weakness in metallurgical coal due to higher costs, weather and maintenance issues.
Credit Suisse conjectures that BHP could be considering a large-scale acquisition given the company’s strong balance sheet and the lack of impact to be gained from small targets, although a big transaction may require Chinese competition clearance triggering divestments.
The broker is also cautious of big M&A given high multiples in future facing industries and the industry’s poor track record with large deals.
Likely targets including Glencore, Freeport McMoran and Vale, the broker noting any split-off of Glencore’s fossil fuel division could leave the green assets available. Otherwise, Credit Suisse suspects pure plays such as Antofagasta and First Quantum may appeal.
Target price rises to $43 from $41 to reflect the strong December quarter. Neutral rating retained given recent share price strength.
Sector: Materials.
Target price is $41.00.Current Price is $46.56. Difference: ($5.56) – (brackets indicate current price is over target). If BHP meets the Credit Suisse target it will return approximately -14% (excluding dividends, fees and charges – negative figures indicate an expected loss).
