Anglo American rating downgraded after BHP talks collapse

By Steve Goldstein

UBS and Jefferies downgrade Anglo American rating

Anglo American was downgraded to neutral from buy at UBS, when BHP on Wednesday did not launch a formal takeover bid for the rival multinational mining group, after suggesting it could buy the company for GBP38.6 billion ($49 billion) in stock.

Anglo American shares (UK:AAL), which fell 3% on Wednesday, slipped another 0.5% to GBP24.63.

"For many years AAL's upside case has been a 'sum of the parts' story, but it took BHP's takeover proposal to unlock some of this value," said analysts at UBS led by Myles Allsop.

Anglo American now will restructure the group, exiting platinum group metals, De Beers, metallurgical coal and nickel.

The analysts say on a sum-of-the-parts basis, there's upside to GBP34 per share, though UBS also increased its target price to GBP27.50 from GBP25. The key uncertainties, it says, are the multiple at which the new core of copper, iron ore and nutrients will trade post break up, and the proceeds from the sale or exit of De Beers.

At the low end of their estimates, they say De Beers will be sold for $4 billion, the coal operations will fetch $4 billion and the Anglo American Platinum (ZA:AMS) stake to be spun out at a 10% discount. At the high end, De Beers could retrieve $6.5 billion and coal could get $5.5 billion. The core will be valued between 6 times 2026 EV/EBITDA and 8.5 times, the analysts said.

Analysts at Jefferies also downgraded Anglo American, moving their rating to hold from buy.

While Anglo had been "rightfully adamant" that BHP's deal structure was problematic, they also view risks to Anglo's disposal plan, as they cut the price target to GBP27 from GBP32.

JPMorgan analysts meanwhile were more positive, seeing a potential buying opportunity since BHP's last offer provides support. "Furthermore, it presents Anglo management a window of opportunity either to show progress in delivering its standalone/defense strategy and/or interlopers to assess potential interest," they said.

JPMorgan reiterated an overweight rating and GBP27.75 price target.

-Steve Goldstein

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05-30-24 0537ET

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