Anglo American Earnings: Weaker Results Driven by Lower Commodity Prices

We maintain our GBX 2,530 fair value estimate for no-moat diversified miner Anglo American AAL after the company’s first-half results, which were slightly weaker than our expectations. Adjusted net profit after tax fell 56% to USD 1.7 billion, or about USD 1.38 per share. Adjusted EBITDA of USD 5.1 billion was 7% below our estimate and 41% below the USD 8.7 billion reported in the first half of 2022. The USD 3.6 billion reduction in EBITDA reflected lower average prices, partially offset by foreign exchange, with increased sales volume offsetting cost rises from inflation. Lower earnings drove a 56% decline in the interim dividend, with USD 0.55 to be paid to shareholders in September. This is consistent with the company’s base dividend target payout ratio of 40% and slightly less than half our forecast 2023 dividend of about USD 1.20 per share. Lower cash flow due to lower earnings and working capital build—most of which we think is temporary—has seen net debt rise to USD 8.8 billion at the end of June, from about USD 7 billion at the end of December 2022. However, with net debt/EBITDA at 0.9, we think the balance sheet is sound.

We forecast 2023 EBITDA of roughly USD 10.7 billion, around 26% lower than 2022, with 2023 second-half earnings helped by higher copper, platinum group metals, and metallurgical coal sales volume. While Anglo American is more diversified by commodity than competitors like BHP, Rio Tinto, and Vale, its assets tend to be higher-cost and more capital-intensive. This means it is more leveraged to changes in commodity prices, as illustrated in the first half of 2023, where the prices of its major commodity exposures such as iron ore, platinum group metals, and metallurgical coal fell. However, all things equal, it also means a rising price environment will likely see Anglo American’s earnings rise by more than those of its lower-cost competitors. The shares currently trade close to our fair value estimate.