BHP Billiton plc’s (LON:BLT) exposure to copper and nickel means it should once again be considered the “benchmark for diversified miners”, according to Societe Generale.
Copper earnings are estimated to represent around 30% of EBITDA (underlying earnings) in 2019, compared with less than 15% at rival Rio Tinto PLC (LON:RIO).
Analyst Christian Georges reckons this increased exposure will be a good thing, given that he expects higher demand for batteries – both for electric vehicles and energy storage – to prop up copper prices in the near-term.
“Overall, c.48% of the group’s net asset value is exposed to resilient underlying prices (nickel, copper and oil), which contrasts in the sector with the weaker price environment in the bulk products (iron ore and coal),” wrote Georges in a research note.
In terms of iron ore and coal, the analyst estimates they will represent around 45% of EBITDA in 2019, compared to 60% at Rio Tinto.
Oil divestments to bring in US$10bn of cash
As well as improving copper prices, Georges also expects oil prices to continue their upward trajectory and head up to US$65 per barrel – a 19% increase on his previous estimate.
“This…suggests that near-term divestment of the non-core shale operations is increasingly likely, which could generate up to US$10bn in cash, equivalent to a 10% yield.”
Georges speculates that this could lead to a special dividend or buyback, although he also notes that management may instead prefer a swap with conventional oil assets over cash.
Earnings and divi forecasts hiked
To reflect the higher commodity price estimates, Societe Generale has raised its EBITDA estimates by 17% for 2018 and 14% for 2019.
Next year, Georges expects BHP to pay a dividend of 138p – equivalent to a 7% yield. That’s a bullish figure and more than 50% above the average analyst forecast.
All of that has lead the analyst to upgrade BHP to a ‘buy’ recommendation, while he has also hiked his price target by 14% to £16.
In early deals, BHP shares were broadly flat at £13.88.