Credit Suisse says BHP dividend safe even in 'more extreme' scenarios
Analysts at Credit Suisse cut their target price for shares of BHP Billiton from 1,900.0p 1,600.0p but upgraded their recommendation from 'neutral' to 'outperform'.
To back up their investment case, they pointed out to clients how markets were now implicitly pricing in negative long-term growth, which is known as a stock's 'terminal value', of -3%.
Hence, they preferred BHP over Rio Tinto.
They also hailed the company's focus on large projects in attractive markets and growth projects.
There was also scope to funnel the proceeds from the sale of its thermal coal unit, which the Swiss broker pegged at between $1-2.0bn bak to shareholders given that net debt was seen falling to just 0.6 times EBITDA by the end of 2020.
"Even in more extreme downside scenarios, we see no pressure on the balance sheet or dividend over the next 12 months," they added.
Nevertheless, they believed that the group could be more "ambitious" in its goals for becoming greener, for example by reviewing its involvement in coking coal.
"In 2019 BHP signed four renewable contracts for Escondida and Spence to move these mines towards 100% renewables by the mid-2020s, reducing its Chilean GHG emissions by 60% and by over 15% for BHP as a whole. It seems clear the group is pushing for a greener footprint.
"Will that be enough to attract ESG-focused investors? Although we appreciate that the group targets being “emission neutral” by 2050, we think this target is not too ambitious. Given trends in the global steel industry, we believe the mid- term impact on emissions could be even greater if the group were to review its involvement in coking coal."