UBS says an 'unloved' BHP is still a good buy

Image: Screenshot from BHP’s new TV campaign.

BHP is a bit “unloved” at the moment, but UBS has just upgraded the world’s biggest miner to a buy.

The shares are down 5% so far this year, underperforming Rio Tinto by 10%.

However, UBS analysts say they expect BHP to report robust second half earnings of $5 billion in August and pay a 56 cent a share dividend, taking the full year shareholder payout to 96 cents.

BHP management is under increasing pressure from fund managers Elliott Associates to structure for the miner and return cash to shareholders.

Elliott has criticised what it calls BHP’s “do nothing” management, saying shareholders want a halt to “chronic underperformance” of the miner and put an end to tax avoidance using a Singapore subsidiary.

However, BHP says the costs and associated risks of Elliott’s proposal would “significantly outweigh any potential benefits”.

UBS, saying BHP’s cash flow is compelling, has upgraded the miner to a buy from neutral with a 12 share price target of $28.00.

“We believe BHP is well positioned for the current commodity price environment, as it is has long-life, low-cost, well-invested assets in low-risk jurisdictions, as well as a strong balance sheet and attractive growth options,” UBS analysts Glyn Lawcock, Myles Allsop and Amber MacKinnon write in a note to clients.

“BHP is focusing on lowering costs/ improving productivity and releasing latent capacity.”

The shares are trading at $23.32 today.

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