Citi upgrades BHP on potential upside risks to shale sales

Analysts at Citi upgraded BHP Billiton to 'buy' from 'neutral' on Thursday in view of upside risks to what the mining and metals giant could realise in the divestment of its US shale assets.

Citi, which issued the dual-listed firm with a target price of £16 per share up 50p, said that BHP shares had seen a sell-off over concerns of a "sluggish pick-up in Chinese economic activity" since the Chinese New Year, as well as on threats of tariffs derailing the global economy, but noted that while they recognised the risk of escalation, its analysts did not see the increased protectionism as a "major impediment to global growth".

The analysts also highlighted the upside risk to what BHP could realise from shale divestments based on recent transactions, such as US Permian player Concho's recently announced proposal to acquire RSP Permian for an estimated value of $9.5bn.

"Applying a PDP blow-down value at NYMEX strip prices of $38k per flowing BOE to RSP’s current production would value RSP's roughly 92k net acres at around $80,000 per acre. Applying this multiple would lift our acreage valuation of BHP's shale assets from $10bn to $14bn," Citi's analysts concluded.