Bernstein Upgrades BHP Billiton On High 'Intrinsic Value,' Change In Leadership

BHP Billiton Limited (ADR) BHP was upgraded to Outperform by Bernstein on the strength of the Australian company’s core mining business.

BHP has traded lower than its peers in recent months, but shares are poised to return to their “intrinsic value,” analyst Paul Gaitsaid in a Wednesday note.

“We now see a clear catalyst for a re-rating of the stock, as we expect a shift in strategy at BHP following the appointment of the successor to outgoing Chairman Jac Nasser,” Gait said.

Bernstein previously had a Market Perform on BHP.

Nasser — formerly the CEO of Ford Motor Company F — will depart this fall, with Ken MacKenzie replacing him Sept. 1, according to BHP.

Shareholders are asking for a portfolio review and restructuring at BHP, according to Bernstein, and the analyst firm is projecting that it will occur. A restructuring could mean a demerger of BHP’s petroleum business, a move Gait called “most welcome.”

“Following such a move, we believe that the value upside in the core mining business will become more pronounced and also much easier to see.”

The separation of the lines of business has been pushed by activist investor Elliott Advisers as a means of boosting share performance. Incoming Chairman MacKenzie has the support of Elliott Advisers, according to Bernstein.

Splitting Off Oil And Gas

BHP possesses some of “the world’s best mining assets in some of the most attractive commodities,” Gait said.

The company’s holdings include copper, iron oil, coal and nickel assets in Australia, and copper, zinc, iron ore, coal and potash in the U.S., Canada, Chile, Peru, Colombia and Brazil.

BHP has oil and gas holdings in the U.S., Australia and Trinidad and Tobago, according to the company.

“We have long argued that BHP is not the natural owner of oil assets, as we see no obvious synergies between mining and petroleum production,” Gait said. “Splitting the two businesses apart, on the other hand, could allow the disclosure of their full value.”