From Fairfax:
JPMorgan is the first of the analysts covered by Bloomberg to capitulate from the optimistic hold and buy ratings since questions about the company’s ability to maintain its progressive dividend policy emerged amid sharp falls in its share price this year, made worse by the tailings dam disaster at its joint venture mine in Brazil.
In cutting its rating from “neutral” to “underweight”, JPMorgan analyst Lyndon Fagan said he was now factoring a 50 per cent cut to BHP’s dividend on the risk of fresh falls in copper prices.
Fagan also slashed the target price for BHP from $27 to $18.
Fagan said falling commodity prices and the likely costs associated with the dam disaster in Brazil have left a $10 billion shortfall in BHP’s free cash flow against its dividend payout commitments over the next two years.
“We believe pressure will grow on BHP’s board to take action, and we now forecast a 50 per cent cut to the progressive dividend at the fiscal year 2016 results in August,” Fagan said. “Whilst the Samarco disaster continues to play out, the consensus downgrade cycle remains ongoing, and the dividend cut looms, we believe the stock will trade at a 30 per cent discount to NPV [net present value] which forms the basis of our revised target price.”
Many more to come.