On Thursday, Citi revised its price target for BHP Group (NYSE:BHP), traded on the London Stock Exchange as BHP:LN and on the New York Stock Exchange as NYSE:BBL, to £25.00, down from the previous target of £26.00. The firm has maintained its Buy rating on the mining giant's stock. The adjustment follows BHP's report of robust production figures for the June quarter of the 2024 fiscal year, which surpassed Citi's expectations in all principal divisions.
Despite the strong production, BHP has signaled that costs for certain operations, specifically its Spence copper mine in Chile and its Western Australia Iron Ore (WAIO) operations, are expected to reach the upper half of their forecasted ranges. Looking ahead to the 2025 fiscal year, BHP's production guidance suggests a stable outlook, with anticipated increases in copper production, steady iron ore output, and a decline in coal production.
The company's capital expenditure for the 2024 fiscal year is projected to be around $9.3 billion, which is lower than the previously guided figure of approximately $10 billion. Citi has also revised BHP's EBITDA estimates downward by 3% for FY24 and 7% for FY25, attributing the decrease to slightly higher operational expenses and nickel costs.
In terms of shareholder returns, BHP is expected to lower its dividend payout ratio to 52%, which will result in dividends for FY24 and FY25 being 9% and 16% lower, respectively. Despite these adjustments, Citi's valuation of the company, based on discounted cash flow (DCF), has decreased by 4% to £21.7, factoring in current foreign exchange rates.
Citi's positive stance on BHP is supported by its copper price forecast for the calendar year 2025, which stands at $12,000 per metric ton. This price point positions BHP with an enterprise value to EBITDA (EV/EBITDA) multiple of approximately 5.3 times for the FY25 and FY26, reinforcing the firm's Buy rating and the revised price target of £25.00.
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