Why are BHP shares on a downward slide?

The iron ore mining giant’s shares have declined by 10% in the last one month.

  • BHP Group (LON: BHP) shares continue their descend, dropping to 2,123 pence on Thursday (02 September 2021)
  • The stock has been declining since the group announced plans to sell its oil and gas business
  • Its credit rating could fall to its lowest ever, S&P Global warned
  • Keen to trade BHP Group shares? Open an account with us to get started.

BHP Group share price: what’s the latest?

BHP Group shares have fallen 8% in the last three days, as markets eased on the back of lower US consumer confidence readings and month-end re-balancing.

‘A spike in eurozone inflation might also play a part, putting heavy pressure on European stocks as investors start to worry that ECB hawks will begin to call for an earlier end to loose policy and bring forward a post-crisis rate hike,’ said IG’s chief market analyst Chris Beauchamp.

But with the US central bank deferring tapering to later in the year, the overall market atmosphere ‘will remain conducive for risk assets’, he added.

BHP Group to divest petroleum business

BHP shares have been declining since it announced plans to sell its oil and gas business to Woodside Petroleum two weeks ago. The iron ore miner has lost over 10% of its market capitalisation in all since that announcement.

Deutsche Bank analysts believed the divestment to be a ‘good strategic step’ as it ‘increases the likelihood of copper and nickel acquisitions’.

In the same vein, they ‘see limited valuation uplift’ from the proposed structure as ‘it leaves BHP short on growth options’.

Similarly, S&P Global cautioned that the sale could threaten BHP’s credit rating, as it would increase the group’s exposure to iron ore price fluctuations even more.

As a result of a potentially ‘less diversified portfolio’, the rating agency could lower ratings on BHP ‘by up to two notches in the coming months… if the divestment of its petroleum assets takes place as proposed’.

This means BHP’s credit rating could drop to BBB+, its lowest ever.

Moody’s, meanwhile, sees ‘no material credit implications’, but acknowledges that the potential exit ‘will reduce scale and commodity diversity’.

What’s your view on BHP Group? Take a position on the stock today

Take your position on over 13,000 local and international shares via CFDs share trading – all at your fingertips on our award-winning platform.* Learn more about share CFDs with us, or open an account to get started today.

How do analysts view the stock?

In other news, the iron ore giant is also planning to unify its dual-listing company (DLC) structure. As part of this restructure, BHP will shift its primary listing to the Australian Stock Exchange, while retaining a smaller, standard listing in London.

RBC Capital analyst Tyler Broda reiterated an ‘outperform’ rating on BHP Group, a day after the announcement.

Barclays, which rated the stock ‘overweight’ with a price target of 2,500p, acknowledged that while ‘there are risks’ associated with the move, ‘an off-market buyback in Australia in February would address this: we forecast a US$9bn buyback in FY22 to meet an assumed US$7.5bn net debt target’.

As part of the DLC restructuring, BHP Group’s UK PLC shares will be exchanged for its Australia Ltd shares on a one-for-one basis.

‘Given PLC shares pre-announcement traded at a 16% discount to Ltd, this has had a materially positive share price benefit to the PLC. We expect the spread to move to about a 6% discount with further closure likely as we move towards votes by PLC and Ltd holders in Q1-22,’ the analysts wrote.

Read more: Top 5 FTSE 100 stocks to watch in September 2021

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.