Sunday, January 30, 2011

Macquarie Keeps BHP at Outperform

Macquarie has kept BHP Billiton’s shares at outperform, with a 47 Australian dollar (US$47.27) price target after Canada rejected BHP’s bid for Potash Corp., with 30-day window before the final decision is made.

“In our view, this decision suggests BHP Billiton now faces a significant uphill battle to win Canadian government support for its bid,” says a broker. Macquarie expects BHP to rally on increasing prospects that the Potash bid eventually falls through and “an accretive share buyback becomes more likely.”

The broker says BHP “remains in attractive fundamental, historical and relative valuation territory”. But Macquarie also says that “in a long-term sense, this initial rejection (if upheld) may be viewed as a potential de-rating driver for the world’s biggest miner (at least at the margin) as it highlights the challenges BHP faces in delivering meaningful inorganic growth in any mining sphere outside of oil and gas.”

BHP was last trading up 2.6% at A$43.73.

–David Rogers

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