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Anglo American cuts payout on weaker prices

Dividend and earnings down as all segments but De Beers, coal and manganese lose ground on very strong 2021
July 28, 2022
  • Basic dividend cut after earnings fall on lower metals prices, production issues
  • Analyst says second half looking better

Anglo American (AAL) has a varied portfolio but the decline in metals prices in the first half of the year was widespread enough to knock its underlying cash profit down by 28 per cent compared with 2021. This has led to a dividend cut and a difficult first earnings release for new chief executive Duncan Wanblad, who took over from Mark Cutifani in April. 

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

The metals price rout came from lower demand in China because of Covid-19 lockdowns, as well as traders and investors dumping speculative holdings on the back of a global growth slowdown. Only metallurgical coal sales provided any real earnings relief for Anglo American: the unit shifted from an underlying operating loss last year to an operating profit of $1.2bn. De Beers was also a positive for profits. 

Production was higher for copper but weaker for platinum group metals and iron ore. The latter was hit by rain and a “blasting misfire” that took a whole quarter to work through, Wanblad said. 

The comparison with Glencore (GLEN), which analysts forecast will see soaring cash profits this year, offers an alternative reality had Anglo not so quickly left the thermal coal market by selling its one-third Cerrejon holding to Glencore and spinning off Thungela (TGA)

The company managed a $115mn gain on selling its remaining 8 per cent stake in Thungela, which holds South African thermal coal mines. The long-term thinking was sound – consensus estimates see Thungela dropping from a $2bn cash profit this year to $126mn in 2026 – but those dollars would have helped this year. 

RBC Capital Markets analyst Tyler Broda said the miner had “taken its pain” in terms of production in the March quarter, and so management sticking with guidance was positive. “Anglo had a tough H1 but operations are recovering and the shares have underperformed,” he said. 

Anglo is less reliant than BHP (BHP) and Rio Tinto (RIO) on copper and iron ore prices, thanks largely to its platinum group metal operations, but is evidently still exposed to industrial metals falling from multi-year highs. We are bullish on its medium- and long-term prospects, especially with the Quellaveco copper mine in production since last month. Anglo should weather this weaker metals environment better than the other miners, bar Glencore. Buy. 

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

ANGLO AMERICAN (AAL)   
ORD PRICE:2,850pMARKET VALUE:£38.1bn
TOUCH:2,849-2,850p12-MONTH HIGH:4,293pLOW: 2,359p
DIVIDEND YIELD:10.8%PE RATIO:6
NET ASSET VALUE:2,136ȼNET DEBT:11%
Half-year to 30 JuneTurnover ($bn)Pre-tax profit ($bn)Earnings per share (ȼ)Dividend per share (ȼ)
202121.810.7418171
202218.16.81303124
% change-17-36-28-27
Ex-div:18 Aug   
Payment:23 Sep   
£1=$1.21 NB: 2021 HY dividend excludes special dividend of 80¢