Analysts Upgrade Anglo, But Consider it Overvalued

Equity analysts have upgraded AngloAmerican after the firm secured a better price for commodity assets - but the stock is still rated one star, meaning it is overvalued

Morningstar Equity Analysts 29 April, 2016 | 10:42AM
Facebook Twitter LinkedIn

We are raising our fair value estimate for Anglo American (AAL) to £2.30 per share from £2, as the company received a more favourable sales price for its niobium and phosphate assets compared with our attributed value. Anglo’s financial leverage magnifies the impact of the incremental value on our residual equity fair value estimate. Still, with the rally in shares over the past two months from a low of £2.20 in January to more than £7.50 today, we believe Anglo American shares remain overvalued.

We see considerable downside as cash flows from its iron ore, coal, and copper businesses continue to decline with commodity prices. Anglo American announced yesterday that it reached an agreement with China Molybdenum to sell the niobium and phosphate assets for $1.5 billion in cash. These assets had generated just $146 million of earnings before tax in the previous year, split approximately equally between the two businesses. The sales price implies a valuation multiple of approximately 10 times earnings before tax, higher than the 6 to 7 times we believe is the asset is worth.

We value the niobium assets in line with Anglo American companywide cash flows at 5 times earnings before tax and the phosphate assets at 8 times EBITDA. This sale is one of the largest that Anglo American has done recently as it looks to divest noncore assets to focus on copper, diamonds, and platinum. The company continues to look to offload its coal and iron ore businesses

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Anglo American PLC2,762.50 GBX-1.99Rating

About Author

Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.