Morningstar Downgrades Value for Anglo American

Our cut to the miner's fair value estimate is due to higher cost assumptions

Daniel Rohr, CFA 7 June, 2012 | 10:44AM
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The following updated Morningstar analyst report examines prospects for Anglo American (AAL). Analyst Daniel Rohr also explains the reasoning behind his downgrade to the company’s shares, estimating the miner’s fair value rests at 2,200p per share.

Anglo American: Current Operations and Future Projections
For the past decade, emerging-market growth--and the commodity demand that accompanies it--has pushed commodity prices to record highs and the profits of miners such as Anglo American (AAL) to previously unheard-of levels. In the decades to come, no single factor will play a more important role in Anglo's future than the economic trajectory of emerging markets, particularly China.

While all miners are, for better or worse, hitching a ride on the Chinese economy, Anglo's exposure to the China story is somewhat atypical. Compared with most peers, Anglo's portfolio has less exposure to commodities like iron ore and metallurgical coal that are critical to the investment-heavy early stage of economic development. Anglo has greater exposure to late-stage commodities like platinum and diamonds, which benefit most as increasingly well-to-do consumers look to enjoy the fruits of their labour. To the extent we see Chinese growth transition from the investment-led story of the past decade to a consumption-led future, Anglo is arguably better positioned to benefit than most diversified peers.

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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.

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About Author

Daniel Rohr, CFA  is a senior equity analyst at Morningstar.