ASX 200 resource share upgraded to ‘overweight’ on LSE by Morgan Stanley

Iron ore prices remain at near record highs despite Chinese government efforts to deflate them.
The post ASX 200 resource share upgraded to ‘overweight’ on LSE by Morgan Stanley appeared first on The Motley Fool Australia. –

S&P/ASX 200 Index (ASX: XJO) resource shares have been enjoying the tailwinds of soaring commodity prices.

While metals like gold, copper and iron ore have slipped from their multi-year (or even record) highs, they remain well above where they were trading this time last year.

For example, iron ore, Australia’s top export earner, is still trading for US$207 per tonne.

And that’s helped convince Morgan Stanley (NYSE: MS) to upgrade its outlook for an ASX 200 resource share that’s listed on multiple international exchanges.

In this instance, the upgrade comes from Morgan Stanley’s London office.

What international ASX 200 resource share did Morgan Stanley upgrade?

Morgan Stanley already has an overweight rating on ASX 200 listed BHP Group Ltd (ASX: BHP). Those shares, obviously, trade on the Australian Securities Exchange.

However, BHP shares are listed on major exchanges across the world, including the London Stock Exchange (LSE) where it’s listed as BHP Group PLC (LON: BHP). And yesterday (overnight Aussie time), Morgan Stanley upgraded BHP Group PLC to overweight.

As the Australian Financial Review notes, London office analyst Alain Gabriel reckons BHP shares offer “generous capital returns“.

Part of his bullishness on BHP is based on today’s iron ore prices holding, in which case Gabriel forecasts “it’s trading on a financial 2022 free cashflow yield of 23 per cent. Even at base case forecasts that’s 14 per cent”.

According to Gabriel (quoted by the AFR):

Shares have underperformed peers YTD by an average of 11 per cent and are implying a [long-term] iron ore price of $US71 a tonne versus a spot price of $US207 a tonne.

Gabriel upped his price target to 2,360 pence, up from 2,110 pence.

BHP PLC closed yesterday at 2,065 pence, implying a 14% potential upside.

A word on international listings

It’s worth noting that BHP shares don’t move identically in the different exchanges where the company is listed. Some of that’s due to currency fluctuations, and some on the demand dynamics in any given market.

However, BHP’s London and Aussie listed shares do tend to move rather closely.

Over the past 5 days, for example, BHP’s London shares have lost 2.1%, while on the ASX 200 they’re down 2.2%.

Going back a full year, the difference is larger, with BHP shares gaining 23% on the LSE while they’ve gained 33% on the ASX 200.

The post ASX 200 resource share upgraded to ‘overweight’ on LSE by Morgan Stanley appeared first on The Motley Fool Australia.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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