The BHP Group Ltd (ASX: BHP) share price could be great value at the current level.
That's the view of analysts at one leading broker.
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What is being said about the BHP share price?
According to a note out of Goldman Sachs this morning, its analysts have reinstated coverage on the mining giant's shares with a buy rating and $51.20 price target.
Based on the current BHP share price of $45.65, this implies potential upside of 12% for investors over the next 12 months.
In addition, the broker is forecasting fully franked dividend yields of ~11% in FY 2022 and ~9% in FY 2023. This brings the total potential 12-month return to greater than 20%.
What did the broker say?
Goldman Sachs revealed that it reinstated its buy rating due to the Big Australian's attractive valuation and free cash flow, as well as upside from its ~US$20bn copper growth pipeline.
In respect to its valuation, the broker acknowledges that the BHP share price trades at a premium to peers but believes this is justified and will continue despite the petroleum demerger. It explained:
BHP has traded at a ~0.5x EV/EBITDA premium to global mining peers over the past decade, which we put down partly to the benefits of the higher margin oil business. […] We believe this premium vs. peers can be maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore), high returning copper growth, and lower iron ore replacement & decarb capex, and jurisdiction risk.
As for its copper growth potential, Goldman Sachs highlights:
[We] continue to believe BHP's major opportunity (and challenge) is offsetting copper reserve depletion and grade decline in Chile from 2023 through investing in BHP's copper reserves/resources (40Mt/200Mt) which are the largest globally. We now include US$6bn of copper projects out of the ~US$20bn we have identified, delivering 400-500ktpa of copper out of potential ~0.9Mtpa total. If BHP develops all copper options, we forecast modest Cu Eq production (CAGR) of around ~1% over the decade, broadly in line with global peers.
All in all, the broker sees a lot of value in the BHP share price, which could make it one to consider if you're looking for exposure to the resources sector.
