Shares in BHP Billiton plc (LON:BLT) were in demand after the London arm of Deutsche Bank turned positive on stock in the mining major.
The move to ‘buy’ from ‘hold’ was made on valuation grounds following the de-rating of the stock in the wake of February’s interim results.
The target price of £17 is around £2.50 higher than the current share price.
READ: Societe Generale upgrades BHP Billiton to ‘buy’ on copper and nickel exposure
Deutsche said the market had been unsettled by BHP’s overheads, which were higher thanks to one-off costs associated with the Olympic Dam and Bass Strait projects, the Escondida mine and metallurgical coal.
However, its analysts think these have been more than priced in with the Anglo-Aussie giant trading at less than 85% of its net present value.
Important to their ‘buy’ case was its impressive cash flow yield, which is expected to be around 11% next year, while strengthening balance sheet also supports that investment proposition Deutsche believes the company has headroom to make disposals worth US$10bn.
It concludes that BHP is a “simple yet compelling” story. The shares were up 1% at £14.47.