Analysts at Credit Suisse have maintained a 'neutral' stance on BHP Group Ltd (LSE:BHP, ASX:BHP) after the FTSE 100-listed miner "reported mixed Q2-23 production with strengths in iron ore and headwinds elsewhere".
The Swiss bank's analysts said they have updated their estimates for BHP's Q2-23 production and, as a result, their FY23 EBITDA / EPS estimates fall by 5% and 7% respectively on higher cost assumptions.
They noted: "Q2-23 iron ore volumes the only bright spot – WAIO was running at a 263mt run rate in Q2-23, above the top end of the 245-256mt FY23 guidance range (consensus 251mt). While some tie-ins are expected to cause some disruption in H2-23, and BHP’s Q3 is usually a weaker quarter, we believe there could be upside risk to guidance."
"Production at Escondida disappointed; we had expected some disruption due to blockades, but in addition grades did not recover by as much as expected. Escondida is now expected to produce towards the lower end of 1080-1180kt FY23 guidance. Bolstering the medium-term trajectory for what is the world’s largest copper mine (and guided to produce an average of 1,200kt over the next five years) is a strategic priority in our view, though not being helped by near-term production," the analysts said.
"Cost pressures in Australia, Chile are evidently sticky including for BHP which increased FY23 BMA (met coal) cost guidance by 8% at constant FX and expect FY23 Escondida costs to be at the top end of the range; highlighting the ongoing inflation headwinds across the broader sector," they added.
The analysts noted that BHP has a similar valuation to peer Rio Tinto PLC (LSE:RIO) without the growth, and the analysts' preference remains with Rio given BHP trades at a similar EBITDA multiple but currently lacks the same growth profile.
However, the Credit Suisse analysts concluded: "We believe M&A will be a key focus to remedy this, with aims to build/strengthen a position in a key geological basin a key strategic focus."
Ahead of BHP's H1 2023 results, due out on 20 February, they left their price target for BHP unchanged at £26.00 which is based on an 80:20 mix of 1 times net present value (NPV) and 5 times 12-month forward EV/EBITDA.
BHP shares closed trade on Thursday at £27.50.