Earnings look ahead: Anglo American

The mega miner has been punished by traders for suspending its dividend.

Anglo American company logo
Source: Bloomberg

Anglo American will announce its full-year earnings on 16 February, and investors are expecting revenue of $20.4 billion and adjusted net income of $870 million. These forecasts represent a 24% fall in revenue and a 60% drop in adjusted net income. The miner will report its second-half numbers on the same date, and traders are anticipating revenue of $8.27 billion and adjusted net income of $155 million, which compares with the first-half revenue and adjusted net income of $11.55 billion and adjusted net income of $904 million.

Drastic times call for drastic measures which is what Anglo American has delivered. The company has been one of the biggest casualties of the collapse in commodity prices – as far as major miners go – and its overhaul has just begun. Anglo American is going to be reduced to a fraction of its former size when all the asset stripping is completed. The focus has shifted to the company’s tier-one assets, and the cash raised from asset sales will be used to shore up its balance sheet. In these trying times, having a healthy cash position is crucial, but the market has not forgiven Anglo American for suspending its dividend. Without a cash return to shareholders and a gloomy outlook for the metals market, Anglo American will struggle. 

Beware of low valuation 

  12 month trailing P/E 12 month forward P/E P/B value Dividend yield
Anglo American n/a 5.83 0.22 0%
Rio Tinto 15.06 9.67 1.02 9.85%
Glencore n/a 14.32

0.35

0%
BHP Billiton 14.23 45.12 0.75 14.34%
FTSE 100 26.14 15.06 1.67 4.5%

 

Anglo American’s very low forward looking price to earnings ratio is a product of the planned asset stripping programme. The company has an ultra-low price to book value, even by the mining sectors standards, but a more accurate P/B value will become clearer after the firm completes its asset disposals. Ordinarily a low forward looking P/E ratio and a cheap P/B value figure would be attractive to investors, but in Anglo American’s case it is related to the major downsizing that is in the pipeline.  The absence of a dividend has compounded problems for the shareholders. 

Earnings vs estimates
Out of the past eight full-year earnings, Anglo American exceeded the revenue estimate 62.5% of the time, but only 12.5% of the time did it beat the earnings per share (EPS) expectation. We can expect volatility on the day of the announcement, and the stock has moved on average 3.47% post results being released, and only 50% of the movements have been positive. 

Anglo American EPS chart

There is a high correction between the EPS performance and the share price movement on the day the results are announced. 

Anglo American revenue chart

There is limited correction between the revenue performance and the share price movement on the day of the figures being announced.   

  Buy ratings Hold ratings Sell ratings
Anglo American 3 11 16
Rio Tinto 19 7 5
Glencore 19 9 2
BHP Billiton 12 12 6

 

Equity analysts are very bearish on Anglo American, as the company has the highest percentage (53%) of sell ratings associated with it, and the lowest percentage (10%) of buy ratings attached to it from the group of mining companies. Investment banks have a 310p price target for Anglo American, which is 21% above the current price.

The share price has managed to claw back a little over half the losses it incurred in 2016. The sideways trading of mid-January has been replaced by a move higher which began late last month. The 50-hour simple moving average (SMA) crossed the 100-hour SMA on the 28 January and that bullish signal triggered buying. The 100-hour SMA has crossed the 200-hour SMA today (3 February), and if the 100-hour SMA continues to push above the 200-hour SMA it would add to the bullish sentiment. We are seeing 271p acting as resistance, and if there is an hourly close above it, that would point to further gains and the next big resistance levels are 292p and 330p. Moves lower will find support at 245p, but if there is an hourly close below it that would be a bearish indicator, and the next big support level in sight is 215p. 

Anglo American chart

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