Anglo American cuts payments due to falling prices

  • Core dividend slashed after earnings tumble due to lower metal prices and production issues
  • According to an analyst, the second half looks better

Anglo-American (AAL) has a varied portfolio, but the fall in metal prices in the first half of the year was widespread enough to cause its underlying cash profit to fall by 28% compared to 2021. This led to a cut in dividends and an initial publication tough results for new chief executive Duncan Wanblad, who took over from Mark Cutifani in April.

Underlying Ebitda was $8.7bn (£7.2bn), while margin fell from 61% to 52%. The cash profit figure was $400 million below consensus estimates.

The rout in metal prices came from lower demand in China due to Covid-19 lockdowns, as well as traders and investors dumping speculative holdings due to slowing global growth. . Only metallurgical coal sales brought any real profit improvement to Anglo American: the unit went from an underlying operating loss last year to an operating profit of $1.2 billion. De Beers was also positive for earnings.

Production was higher for copper but lower for platinum group metals and iron ore. The latter was hit by rain and a “misfire” that took a full quarter of an hour to pass, Wanblad said.

The comparison with Glencore (GLEN)whose analysts forecast will see cash profits skyrocket this year, offers an alternate reality where Anglo had not so quickly exited the thermal coal market by selling its third of Cerrejon to Glencore and splitting off Thungela (TGA).

The company made a $115 million gain on the sale of its remaining 8% stake in Thungela, which owns South African thermal coal mines. The long-term thinking was wise — consensus estimates see Thungela grow from a cash profit of $2 billion this year to $126 million in 2026 — but those dollars would have helped this year.

RBC Capital Markets analyst Tyler Broda said the miner “suffered” in terms of production in the March quarter, so management’s adherence to guidance was positive. “Anglo had a difficult first half but operations are recovering and stocks have underperformed,” he said.

Anglo is less dependent than BHP (BHP) and Rio Tinto (RIO) on copper and iron ore prices, largely thanks to its platinum group metals business, but is obviously still exposed to industrial metals which are falling from multi-year highs. We are optimistic about its medium and long-term prospects, particularly with the Quellaveco copper mine in production since last month. Anglo should weather this weaker metals environment better than other miners except Glencore. To buy.

Last Seen IC: Buy, 4,148p, Apr 21, 2022

ANGLO-AMERICAN (AAL)
ORDER PRICE: 2850p MARKET VALUE: £38.1 billion
TO TOUCH: 2849-2850p TOP OF 12 MONTHS: 4 293p LOW: 2,359p
DIVIDEND YIELD: 10.8% P/E RATIO: 6
NET ASSET VALUE: 2,136ȼ NET DEBT: 11%
Semester to June 30 Revenue (in billions of dollars) Profit before tax (in billions of dollars) Earnings per share (ȼ) Dividend per share (ȼ)
2021 21.8 10.7 418 171
2022 18.1 6.81 303 124
% change -17 -36 -28 -27
Ex div: August 18
Payment: Sep 23
£1 = $1.21 NB: H1 2021 dividend excludes 80¢ special dividend