Anglo American PLC (LON: AAL) 

Anglo American PLC is an FTSE 100 listed Mining Company with operations in Australia, Southern Africa, South America, and North America, and is headquartered in London, United Kingdom. The Company’s primary activities include mining, exploring, and processing of minerals and metals at various geographies globally.

Recent trend of dividend payments

After delivering robust financial performance, AAL decided to pay a special dividend of USD 0.80 per share in addition to the normal interim dividend of USD 1.71 per share, which represents almost 40% of the payout ratio. The total dividend of USD 2.51 per share was paid on 24 September 2021, with an ex-dividend date of 19 August 2021.

(Source: LSE; Charts created by Kalkine Group)

Growth Prospects (Also covers Q3 FY21 production report released on 21 October 2021)

• Lucrative Returns to Shareholders: AAL had decided to distribute USD 2 billion to the shareholders in the form of a special dividend and a share buyback program of USD 1 billion, driven by the resilient financial performance and robust balance sheet. Moreover, the buyback program would continue no longer than 14 February 2022.
• Strong Returns from Platinum Group Metals (PGMs): The accelerated recovery in key US and China markets took diamond production to show an increase of around 28% during Q3 FY21, mainly from the Jwaneng and Venetia mines. Furthermore, Platinum Group Metals (PGMs) operations delivered a 39% increase in refined output during Q3 FY21.
• Increase in Exploration Expenditure: AAL had increased exploration expenditure by around 42% to USD 37 million during Q3 FY21, benefited by increased activity in copper and PGMs.
• Strong Portfolio: The portfolio of minerals and metals include thermal coal, manganese, nickel, iron, diamonds, platinum, and copper. It seeks to secure, develop, and operate a portfolio of high quality and long-life resource assets that offers an attractive long-term value creation potential through sustainable cash flow and returns

Key Risks

• Reduction in Copper Production: AAL had shown around a 6% drop in copper production during Q3 FY21 when compared with Q3 FY20.
• Supply Chain Disruption: The recent shortage of lorry drivers in the UK had created supply chain disruptions and escalated the freight cost.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Bank of England Meeting: The Bank of England meeting scheduled for 04 November 2021 may result in an interest rate hike, which may make fundraising more expensive.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Anglo American PLC.

Public Investment Corporation (SOC) Limited is the most significant shareholder as it holds nearly 93.55 million shares as of 30 September 2021. 

Recent Developments

Appointment of CEO: On 02 November 2021, AAL updated regarding the appointment of Duncan Wanblad as Chief Executive with effect from 19 April 2022.

Scope 3 Emissions: On 29 October 2021, AAL updated that it aimed to reduce Scope 3 emissions by 50% by 2040.

H1 FY21 Financial & Operational Highlights (for six months ended 30 June 2021, as of 29 July 2021)

 (Source: LSE Website)

• Strong Top-Line Business: The Group’s revenue grew by around 114% from USD 10.19 billion during H1 FY20 to USD 21.78 billion during H1 FY21.
• Robust Profitability: AAL had witnessed a substantial increase in net profit from USD 0.5 billion during H1 FY20 to USD 5.2 billion for H1 FY21.
• Operational Cash Flow: AAL had shown a significant increase in an operational cash inflow to USD 10.7 billion as of 30 June 2021, while it was USD 1.5 billion as of 30 June 2020. Moreover, it resulted in the strengthening of the balance sheet as net debt reduced by around USD 3.50 billion since 31 December 2020.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 03 November 2021, at 08:02 AM GMT, AAL’s shares were trading at GBX 2,749.50, up by around 1.08% from the previous day closing price. Stock 52-week High and Low were 3,432.04 and GBX 1,799.20, respectively.

From a technical perspective, the stock price is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. The 14-days RSI stood at ~47.78.

On a year-to-date basis, AAL’s stock price has delivered a positive return of ~17.32%, and it has outperformed the FTSE 100 index (benchmark index) with a return of approximately 12.45%, and the FTSE All-Share Industrial Metals & Mining index (benchmark sector) with a return of about 16.76%. 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

AAL had delivered strong H1 FY21 financial performance and decent operational performance for Q3 FY21. However, due to the logistics disruptions, the Company cut down the production guidance of several commodities. The platinum group metals and copper would continue to witness increasing demand because of the electrification of transport and the adoption of harness clean, renewable energy. Meanwhile, a balanced investment programme is driving margin-enhancing volume growth of 20% over the next three years. The Company is also expecting copper production from Quellaveco in 2022. In a nutshell, AAL remained confident to drive shareholder returns benefitted by a resilient business model and strong commodity demand.

(Source: LSE Website)

Considering the solid industry dynamics, surge in diamond production, robust top-line & bottom-line business growth, strong dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Anglo American PLC at the current price of GBX 2,749.50 (as on 03 November 2021 at 08:02 AM GMT), with lower-double digit upside potential based on 8.12x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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