Overview
Anglo American PLC (AAL) headquartered in London, was founded in 1917. Its principal operations include mining, exploring and processing of metal and minerals globally. The group mainly explores metals such as copper, platinum, diamonds, iron, nickel, manganese and thermal coal. The group has 64,000 employees working worldwide. The company divided its operations into six reportable segments being De Beers, Platinum Group Metals, Copper, Coal, Nickel and Manganese, Iron Ore and Copper. The main products offering of the company includes Diamonds, Copper, Palladium, Rhodium, Thermal coal, Manganese ore and alloys and iron ore. The company is having mining operations in geographic regions of Southern Africa, North America, South America and Australia. 

Key Management Team
The management team of Anglo-American Plc includes Stuart Chambers as Chairman of the Board, Mark Cutifani as Chief Executive, and Stephen Pearce as Finance Director.

Key Statistics


Top Shareholders

Source:TR

Recent News
On 30^th April 2019, the Anglo-American Plc held its AGM (Annual General Meeting). Meeting’s notice was sent on 18^th March to the shareholders. The company announced that Jack Thompson will be retiring from his position of Independent director at the end of the meeting and Marcelo Bastos will join the board from 1^st April and hold an experience of over 30 years in the mining industry, particularly in South America. South America presently holds one-third of the company’s business and introduced a new copper project in Peru’s Quellaveco.

Financial Highlights – Financial Year 2018 (US $, million)

(Source: Annual Report, Company Website)
 
The company revenue for the financial year 2018 increased by 5 per cent from $26,243 million in 2017 to $27,610 million in 2018, mainly driven by increased polished diamonds demand from the US and Chinese retailers in the first half. The revenue from operating segmentsDe Beers, copper, Platinum Group Metals, Coal and Nickel and Manganese had also increased in the current financial year. The company generated underlying EBITDA of $9,161 million in the financial year 2018, showing an increase of 4 per cent in comparison with the financial year 2017, due to controllable factors which include costs and volumes. The company’s operating profit for the FY2018 stood at $6,069 million against $5,529 million in FY2017. Profit before tax for the FY2018 increased by 12.43 per cent to $6,189 million from $5,505 million for FY2017. The company delivered profit attributable to equity shareholders of $3.5 billion in the financial year 2018, representing an increase of 12 per cent in comparison with the last year. The company reported $3,157 million of attributable free cash flow in the financial year 2018, down by 36 per cent in comparison with the 2017 financial year data, mainly due to increased sustaining capital expenditure and higher tax payments. The company had reduced net debt to $2.8 billion in the financial year 2018, showing a 37 per cent decline since 2017 (0.3x net debt / underlying EBITDA). Debt reduction was driven by disciplined capital allocation. The company’s reported Basic Earnings per share for 2018 stood at US$ 2.80 which was 13 per cent more than 2017 reported Earnings per share of US$ 2.48. The company’s diluted earnings per share were US$ 2.74 for FY2018 against US$ 2.45 for FY2017.

Segment Reporting

Source: Annual Report

In FY2018, the revenue from De Beers increased by 4.12 per cent, Copper increased by 22.05 per cent, Platinum Group Metals increased by 11.85 per cent, Coal increased by 8 per cent, Nickel and Manganese increased by 22.72 per cent whereas revenue from Iron ore segment declined by 23 per cent. The Underlying EBITDA from segments Copper, Platinum Group Metals and coal segment increased in the current financial year whereas underlying EBITDA for De Beers, Iron ore, Nickel and Manganese had decreased in the FY2018 as compared to FY2017. The underlying EBIT from all the segments had increased in the current financial year with exceptions to De Beers and Iron ore segments. The segment-wise underlying earnings increased because of an increase in the profit from Copper, Platinum Group Metals and Nickel & Manganese segment. In the current financial year, the majority of revenue was driven by the sale of diamonds, copper, Palladium, Rhodium, Metallurgical coal and Thermal coal.  

Financial Ratios

(Source: Thomson Reuters)
 
Ratios Commentary
The company’s EBITDA margin of 28.50 per cent for the financial year 2018 stood considerably higher than the industry median of 20.40 per cent. Net margin reported by the company was 15.80 per cent in the financial year 2018, reflecting an increase of 0.3 per cent when compared with the last year data. The company’s Return on equity stood at 15.20 per cent which was higher than the industry median of 13.00 per cent. At liquidity front, the company’s current ratio was higher than the industry median of 1.84, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of AAL Plc’s was 0.38x which was significantly lower as compared to the industry median of 0.43x, reflecting that the company is less leveraged as compared to its peers.  

Share Price Performance

 
Daily Chart as at May-01-19, before the market close (Source: Thomson Reuters)

On May 01, 2019, at the time of writing (before the market close, at 1:37 PM GMT), Anglo American Plc shares were trading at GBX 1,980.60, down by 0.04 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 2,229.50/GBX 1,433.64. At the time of writing, the share was trading 11.16 per cent lower than the 52w High level and 38.15 per cent higher than the 52w low level. Stock’s average traded volume for 5 days was 4,280,694.20; 30 days – 3,549,485.00 and 90 days – 3,728,464.84. The average traded volume for 5 days was up by 20.60 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.46, reflecting more volatility as compared to the benchmark index. The outstanding market capitalisation was around £27.64 billion with a dividend yield of 3.87 per cent.

Valuation Methodology
Method 1: EV/EBITDA Multiple Approach (NTM)
 

To compare Anglo American Plc with its peers, EV/EBITDA multiple has been used. The peers are Glencore Plc (NTM EV/EBITDA was 5.74), Petra Diamonds Ltd (NTM EV/EBITDA was 3.64), BHP Group Ltd (NTM EV/EBITDA was 6.00), Ferrexpo Plc (NTM EV/EBITDA was 3.34) and Rio Tinto Ltd (NTM EV/EBITDA was 5.57). The Average of EV/EBITDA (NTM) of the company’s peers was 4.86x (approx.)

Method 2: Price to Cash Flow Value Approach (NTM)

*All forecasted figures and Peers information have been taken from Thomson Reuters.Currency exchange rate taken for 1 USD = 0.7652 GBP

Growth Prospects and Risks Assessments
The company has a decent growth prospect as there is a positive economic forecast for the global diamond jewellery business. There is Healthy demand for polished diamonds from the US and Chinese retailers. The company operations had been affected by US-China trade tensions, slower economic growth and stock market volatility. In India, the significant depreciation of the rupee reduced local demand in US dollar terms which had put an impact on the earning of the company.

Conclusion
The company had shown a good top-level and bottom-level performance in the current financial year. The revenue from almost all the segments had been increased apart from a few exceptions such as iron ore segment.  The company is planning to increase its production from its old and new operations in the coming future. There had been strong growth in demand of the company’s product such as diamonds, copper, Palladium, Rhodium, Metallurgical coal and Nickel etc. The company has recently deployed FutureSmart Mining™ technologies which will ensure a safe and responsible environment with strict capital discipline and will create a sustainable business in all aspects. The company’s Moranbah and Grosvenor mines had delivered record performance growth in the current financial year in Metallurgical coal production. Despite ongoing US-China trade tensions, the Chinese Government’s ability to rebalance economic growth will help the company to increase its margins. Based on strong fundamental prospects and support from valuation done using the above two methods, we have given a BUY recommendation at the closing price of GBX 1,981.40 (as on 30th April 2019) with high single-digit upside potential based on 4.86x NTM EV/EBITDA Value (approx.) on FY19E EBITDA and 4.7x NTM Price to Cash Flow (approx.) on FY19E cash flow per share.
 
*The buy recommendation is valid for the current price as covered in the report (as on May-01-19).

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