BHP Group: Rebasing expectations post demerger

About the author:

Adrian Prendergast
Author name:
By Adrian Prendergast
Job title:
Senior Analyst
Date posted:
26 May 2022, 10:00 AM
Sectors Covered:
Mining, Energy

  • We have removed BHP Group’s (ASX:BHP) Petroleum business from our group forecasts and valuation.
  • Post the changes our valuation-based Target Price has been revised to (login to view) and we maintain our Add recommendation.
  • The demerger of its Petroleum business has concentrated BHP’s earnings somewhat, while improving its ESG profile.
  • Our positive investment view on BHP is unchanged, while our view on its value has been adjusted for the divestment.

Rebasing expectations

We have removed our estimates for forward earnings contributions from BHP’s Petroleum business segment, and accordingly also removed it from our group valuation on BHP.

In terms of BHP’s altered earnings mix by commodity post the Petroleum divestment (where Petroleum had been 11% of EBITDA in FY22F), BHP’s new EBITDA breakdown by commodity according to our estimates is as follows: iron ore now 54% (was 49%), Copper now 25% (was 23%), Coal now 18% (was 16%) and Nickel now 2% (was 1.3%).

Forecast and valuation update

Our valuation-based Target Price on BHP has been revised to (login to view) post the Petroleum demerger.

We have also removed future earnings contributions from Discontinued Operations in our Profit & Loss forecasts.

Investment view

Other than rebasing our expectations for life without the contribution from its Petroleum business our investment view on BHP is unchanged. 

We continue to see the move as likely to increase the amount of global and domestic investors willing to invest in the company, something that will be further aided by the eventual divestment of its remaining thermal coal assets.

Price catalysts

  • 4Q22 operational result (19 July)
  • FY22 earnings result (16 August)


  • COVID related risks to commodity demand drivers, particularly in China.
  • Inflationary risks to the cost base across BHP’s global operations.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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