Own BHP shares? Here’s why this week’s operations update could disappoint

BHP shares are in focus this week as the company plans to release its quarterly update.

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Key points

  • BHP is scheduled to release its quarterly update tomorrow
  • One broker believes that the update is going to disappoint
  • However, some brokers still think the share is an opportunity

Owners of BHP Group Ltd (ASX: BHP) shares may want to know that the company is due to release its operational update this week. However, one broker thinks the update could disappoint.

On 21 April, the company is expected to tell investors how it performed in the three months to 31 March 2022. Shareholders will get an understanding of the nine months ending 31 March 2022.

Could the quarterly update disappoint?

According to reporting by the Australian Financial Review (AFR), the broker RBC Capital Markets has suggested that BHP’s third quarter won’t be as good as investors are expecting.

There are two reasons for the negativity. One reason is COVID-19, and the other is wet weather.

It was suggested that the spread of COVID-19 in Western Australia, as well as port data, indicates that it’s going to be a “weak” quarter for BHP’s iron operations. Due to those factors, the broker decided to decrease its forecast for FY22 iron ore by 1.1%. The third-quarter estimate is now 67.5 million tonnes.

The AFR reports that RBC Capital suggested that copper production at Escondida and Spence struggled in February. It’s possible that the Escondida guidance for FY22 could be dropped by between 20,000 tonnes to 50,000 tonnes, according to the broker.

Coal production could also be affected by wet weather.

Despite those potential issues, RBC reportedly increased its BHP share price target to $50 from $49. That implies a decline of 6% from where the BHP share price currently sits.

Commentary on BHP

The AFR reported on comments made by RBC analyst Tyler Broda, who said:

We see BHP as a strong and well run mining company with a solid balance sheet and upside risk to near-term consensus cash returns, albeit moderated by rising costs.

We continue to see better upside and strategic positioning elsewhere amongst global peers and maintain a sector perform recommendation.

Other ratings on the BHP share price

Macquarie rates BHP as ‘outperform’, with a price target of $61. That implies a potential upside of around 15% for the resource business.

The broker UBS is ‘neutral’ on the company, however the price target is just $43. That suggests a possible downside of almost 20%.

Both of these ratings came after the merger investor presentation between Woodside Petroleum Limited (ASX: WPL) and BHP’s petroleum division.

The independent expert concluded that the merger is in the best interests of Woodside shareholders. The expert said the merger is broadly supported by various financial and other relative contribution measures.

The share consideration for the deal is 914,768,948 new Woodside shares issued to BHP, with each BHP shareholder receiving approximately 0.1807 new Woodside shares per BHP share. The pro forma equity ownership will be approximately 52% for Woodside shareholders and 48% for BHP shareholders.

There will also be a cash adjustment. Woodside is entitled to around $1.6 billion for net cash flow from the BHP petroleum business from 1 July 2021. But, BHP is entitled to $830 million for dividends paid by Woodside since 1 July 2021.

Motley Fool contributor Tristan Harrison 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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