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Bernstein upgrades Anglo American stock, highlights potential cost savings

EditorEmilio Ghigini
Published 06/11/2024, 04:43 AM

On Tuesday, Anglo American (JO:AGLJ) Plc (AAL:LN) (OTC: NGLOY) stock received an upgrade from Market Perform to Outperform by analysts at Bernstein SocGen Group, with a new price target set at £27.00, raised from the previous £20.20.

The mining company has been in the spotlight since last December when it significantly lowered its production guidance. More recently, it declined a takeover offer from BHP, indicating a period of strategic changes aimed at increasing shareholder value.

The upgrade reflects confidence in Anglo American's potential to realize substantial cost savings and benefit from a strategic safety margin. The analyst believes that the management's plan to achieve $800 million in annual "self-help" cost savings is attainable. Additionally, the possibility of a future takeover bid by BHP, referred to as the "BHP Put," is seen as providing a margin of safety for investors.

The valuation of Anglo American is supported by a Sum of the Parts (SOTP) analysis, which suggests a valuation range of £27 to £28 per share. This aligns with the £27 per share price target derived from a combination of a Discounted Cash Flow (DCF) valuation and an Enterprise Value to EBITDA (EV/EBITDA) valuation model. The analyst's assessment indicates a favorable outlook for the company's financial performance and stock valuation.

The revised price target and upgrade come as Anglo American is actively working on implementing a new strategy. The company's management is focused on unlocking value, which may include streamlining operations and enhancing productivity to achieve the proposed cost savings.

Investors and the market are expected to monitor Anglo American's progress closely as it endeavors to implement its strategic initiatives and capitalize on the opportunities outlined by the analyst. The company's stock performance will likely reflect the market's perception of its ability to meet these operational and financial goals.

In other recent news, Anglo American Plc has been at the center of significant developments. The company has been downgraded from Buy to Neutral by UBS, citing a comprehensive restructuring plan that includes exiting from platinum group metals, De Beers, metallurgical coal, and nickel sectors by the end of 2025. The same restructuring plan is expected to generate substantial cost savings, projecting USD800 million by the end of 2025.

Meanwhile, CFRA maintained a Hold rating on the company's stock, reflecting a valuation based on an EV/EBITDA multiple of 5.5x. UBS also increased the price target to GBP27.50 from GBP25.00, acknowledging the potential for further upside.

In addition, Anglo American confirmed receipt of a preliminary and conditional takeover proposal from BHP Group (NYSE:BHP) Limited, a development that has prompted some value realization for the company.

The all-share offer values Anglo American at GBP31 billion, contingent upon the distribution of Anglo American's shares in Anglo American Platinum Limited and Kumba Iron Ore Limited to its shareholders prior to the deal's completion.

Finally, despite the downturn from peak levels, Platinum Group Metals (PGMs) continue to play a crucial role in the company's financial performance, contributing approximately $1.3 billion to the company's EBITDA in 2024, which accounts for around 12% of the group's total. These are the recent developments surrounding Anglo American Plc.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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