Goldman wants to buy it:
The OZL acquisition will increase BHP’s copper production by ~7% and earnings by a modest 1% in FY24 on our estimates, however will also lift group capex and gearing and lower FCF over the medium term.
We see the deal as slightly value dilutive even at our top of the street, long run copper price forecast of US$4.3/lb (real $), and assuming part of the identified ~US$1.5bn (mid-point) in potential synergies associated with both the Olympic Dam and Nickel West smelters are captured over the next 5-10 years.
Although we believe BHP’s biggest challenge will be the execution of the Carrapateena block cave and West Musgrave projects within OZL’s budget and timeframe, along with capturing the potential synergies with the smelters that we have identified, we upgrade BHP to Buy (from Neutral) based on attractive valuation after the recent ~15% drop in the stock price since January. The slide in share price is due to the recent drop in iron ore and copper prices on the back lower than expected Chinese steel demand and developed market copper demand in 1Q.
Riiiight. So it’s a bad idea but buy it anyway. Yeh, nah.
Goldman’s commodity super cycle is failing. At least while DM central banks kill it. Not even the falling DXY is saving it:
And the subsequent cycle will be defined by a China gone ex-growth sucking away commodity demand, most especially iron ore and coking coal, both of which are still very highly priced.
Given BHP earnings are driven by little else since exiting oil, I humbly suggest you take this rare opportunity to get your own back and use Goldman as your bag holder.
After all, one wants to buy BHP when it is expensive, not cheap, as the four best entry points in the past twenty years attest:
You can buy it back from Goldman much more cheaply when it is expensive!
Not advice!!!
