BHP Group Ltd (ASX: BHP) shares edged higher on Tuesday.
The mining giant's shares rose 0.4% to $40.97 after investors responded relatively positively to the release of its half year results.
As a reminder, the Big Australian posted a 9% decline in revenue to US$25.2 billion and a 23% decline in underlying attributable profit to US$5.1 billion.
This forced the BHP board to cut its fully franked interim dividend by 30.5% to 50 US cents per share.
What are brokers saying about BHP shares?
The team at Goldman Sachs was pleased with BHP's half year results. Commenting on its release, the broker said:
BHP reported an in-line 1H FY25 result with underlying EBITDA/NPAT of US$12.4bn/US$5.1bn, +1%/-1% vs. our estimates. EBITDA margin was ~51% and Return on Capital employed (ROCE) of ~20%. While the result was in-line, the copper division reported EBITDA ~6% above our estimate, on a cost beat at Escondida, Spence and South Australia, due to FX and bi-product credit tailwinds, despite higher costs associated with one-off labour payments in Chile and ore inventory drawdown.
That said, FY25 production and cost guidance is unchanged. We also note that due to recent cyclones in the Pilbara, iron ore shipments are no longer expected to be in the upper half of the guidance range.
In light of this, the broker remains positive on BHP and its shares and is tipping them as a buy.
Time to buy
According to the note, Goldman has retained its buy rating and lifted its price target to $47.40. Based on its current share price of $40.97, this implies potential upside of almost 16% for investors over the next 12 months.
In addition, the broker is forecasting a 3.9% dividend yield in FY 2025, which brings the total potential return to almost 20%.
Goldman continues to believe that BHP's shares are undervalued, particularly given its exposure to copper. It said:
BHP is currently trading at ~0.8x NAV and ~6x NTM EBITDA, below the 25-yr average EV/EBITDA of 6.5-7x, but at a premium to RIO on ~5x and ~0.7x NAV. Over the last 10 years, BHP has traded at a ~0.5x premium to global mining peers. We believe this premium can be partly maintained due to ongoing superior margins and operating performance (particularly in Pilbara iron ore where BHP maintains superior FCF/t vs. peers).
We remain bullish on copper due to ongoing supply side challenges and increasing demand and expect BHP's copper EBITDA to increase by ~US$5bn to ~US$12bn by FY26E (~45% of group EBITDA). Under our base case, copper EBITDA is expected to reach US$20bn by FY35E, at GSe long run copper of US$4.57/lb (real $, from 2028).
