BHP shareholders set for $30 billion windfall: Macquarie

The mining giant is set to give back to shareholders, analysts are tipping.

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Key points

  • BHP shares have surged this year to date amid a buoyant commodities sector
  • The miner has grown dividends and free cash flow and analysts like what this could deliver for shareholders
  • In the last 12 months, the BHP share price has held gains and is up around 3.7%

The BHP Group Ltd (ASX: BHP) share price spiked just after the open on Monday and is trading at $46.62, up 0.8% at the time of writing.

ASX mining shares have surged these past 6 months. BHP has sprung off a low of $35.36 a share in early November and now trades more than $11 higher. It has rallied as much as 42% in that time.

BHP’s key markets have all staged multi-year long rallies and are now surpassing record highs as global tensions mount and inflationary pressures rise.

Why is BHP staging a rally?

Futures on oil, gold, coal, uranium, and copper have surged to new highs, meaning producers have likely locked in forward earnings on these as well.

Most markets have started to cool, however, this hasn’t slowed the pace of earnings upgrades for companies like BHP for the upcoming 12 months.

TradingView Chart

The company’s result could be an earnings waterfall that sees shareholders on the receiving end of lucrative dividends, analysts familiar to BHP are saying.

In a recent note, JP Morgan estimates dividends of $3.01 per share in FY22 and $2.26 per share in FY23.

Meanwhile, analysts at Barclays investment bank highlighted the miner’s free cash flow (FCF) was a huge driver of management declaring the H1 dividend of $1.50 per share. This was 35% ahead of Barclays’ forecast and 21% more than consensus.

“The key driver was a much stronger FCF performance on surprisingly low cash tax and capex,” Barclays said in a note from February.

“The H1 dividend payment equates to $7.6 billion (8.7% annualised yield) and compares to H1 FCF of $7.2 billion post-minority dividends.”

It has a hold rating on the stock and values BHP at $47.38, just behind the consensus of $47.41, according to Bloomberg data.

Meanwhile, analysts at Macquarie reckon shareholders are in for a “US$32 billion windfall by September” from the proceeds of its petroleum demerger. Macquarie says “the implied value…has increased from $20 billion at the time of the announcement to $28 billion”.

It rates BHP a buy at a $61 per share price target. This is behind Argus Media which values BHP at $84.75 per share with a buy rating.

The skew of ratings is weighted towards a hold, according to Bloomberg data. It has 50% of analysts neutral on BHP while one-third say to buy BHP right now.

Funnily enough, that’s well down from the 75% saying to buy BHP around 1 year ago. It’s worth noting the spread between the average price target and the BHP share price has narrowed to 0.89. This indicates the share price is trading close to the consensus valuation.

BHP share price snapshot

In the last 12 months, the BHP share price has held gains and is up around 3.7% in that time.

Year to date, it has surged more than 12% (as shown below) after dropping some of its gains during the past week of trading.

TradingView Chart

It is also now 3% in the red following the consolidation.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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