Broker tips: Anglo American, IG Design

Analysts at Berenberg cut their target price on Anglo American on Wednesday from 2,600.0p to 2,500.0p, saying the miner's third-quarter production results had sparked "little joy".

Berenberg said Anglo American's Q3 results showed "promising consistency" at its Kumba site and in platinum group metals, but that issues at the copper operations in Chile and ongoing weakness in the diamond and PGM markets were likely to continue weighing on sentiment.

In Q3, Anglo American produced 209,000 tonnes of copper, 9,300 tonnes of nickel, 1.03m ounces 6E PGMs, 7.4m carats of diamonds, 15.4m tonnes of iron ore, 4.4m tonnes of steelmaking coal and 1.01m tonnes of manganese ore. Copper production was below Berenberg's estimates on lower grades and throughput at Los Bronces, linked to the impact of a fire that interrupted power supply for 16 days, alongside issues with ore hardness.

The German bank, which reiterated its 'hold' rating on the stock, expects unfavourable ore conditions to persist until the next mine phase, and thinks that Anglo American will need to undertake efforts to manage costs until it can access more areas of the orebody.

"FY 2023 copper cost guidance is maintained, but production guidance has been reduced to 830,000-870,000 tonnes (from 840,000-930,000 tonnes previously), all attributable to Chile where guidance is down to 520,000 tonnes from 530,000-580,000 tonnes previously due to the Los Bronces issues, as well as a geotechnical fault and heavy rain at El Soldado," said Berenberg.

"FY 2023 production and unit cost guidance have been maintained across the rest of the group. On corporate activities, the company notes that opportunities to unwind price-driven working capital builds from H1 in H2 have been limited, while inventory at De Beers continues to build (on weaker market sentiment)."

Over at Canaccord Genuity, analysts reiterated their 'buy' rating on consumer products manufacturer IG Design Group on Wednesday, saying the firm's interim trading update detailed "a robust financial performance" in what remain "challenging market conditions".

Canaccord Genuity said "good progress" continues to be made in improving operational efficiencies and simplifying the business, which has resulted in "significant growth" in profits and margins across the first half. It also pointed out that the improved profitability, coupled with more efficient working capital management, led to "strong cash generation" resulting in significantly lower net debt year-on-year.

"We take encouragement that initiatives aimed at restoring operating margins back to pre-pandemic levels by FY25 continue to gain traction and the aspiration remains on track," it said.

"These initiatives include headcount reductions, the benefit from last year's exit of unprofitable contracts and catch-up pricing, and a more joined-up approach to sourcing, along with the consolidation of group sites. We expect to get more detail on this progress along with an updated outlook at the group’s interim results on 28 November. As a reminder, we forecast FY24E adjusted operating profit to improve by 62.5% yoy to $26.1m, with margins improving to 3.2% from 1.8% last year.

Canaccord noted that IG Design has made "good strategic progress" under its new leadership team, with the refinancing at more favourable terms, and successful execution of strategic initiatives driving an improved financial performance. It said the focus going forward remains on recovering margins and future growth opportunities.

IGR trades on a March 2024 estimated enterprise value/underlying earnings ratio of 2.6x dropping to 1.7x March 2025E, continuing to highlight "inherent value" in Canaccord's view. The analysts also reiterated their 275.0p target price on the stock.