Broker tips: Anglo American, Berkeley Group

Analysts at Berenberg lowered their target price on mining giant Anglo American from 4,300.0p to 4,000.0p on Friday, but said it continues to take "a constructive view" of the stock despite a "hard Q1".

Berenberg noted that Anglo American's shares sold off by roughly 9% on Thursday, driven by a mixture of production guidance cuts and cost increases, and noted that management's announcement offered "few bright spots", with diamonds the only key area of the business that was untouched by the downgrades as iron ore, copper, platinum group metals, metallurgical coal, and nickel all taking "a haircut" in one way, shape or form.

The German bank added that weaker production guidance was a contributor to higher costs, with lower volumes affecting fixed-cost absorption which, as a result, acted as a headwind. The impact of stronger FX and cost inflation combined to drive an approximately 9% cost increase versus previous guidance.

However, Berenberg stated that Anglo remained its "favoured diversified pick", with attractive greenfield and brownfield growth, an appealing commodity mix that it sees as well placed to benefit from current flow dislocations, in turn supporting strong mark-to-market upside.

Berenberg, which stood by its 'buy' rating on Anglo American, pointed out that the stock was trading on 1.78x net asset value and 3.8x earnings before interest, tax, depreciation, and amortisation.

Analysts at Jefferies upgraded their view on Berkeley Group and hiked their target price on the stock, arguing the shares weren't discounting an expected step-up in capital returns or higher returns on equity.

While Jefferies said the homebuilder's earnings could be lumpy because of its efforts to maximise the value of its land bank, the analysts also said Berkeley's St William joint venture was fast-forwarding land buying, investment in its regen sites was topping out, and working capital and deliveries were set to inflect in coming years.

Jefferies stated those factors were expected to drive a "meaningful" step-up in capital returns, to the tune of a 100% yield over seven years, and lift the company's return on equity back above 20.0%.

However, the analysts said neither of those two outcomes was reflected in the shares' valuation and they upgraded their recommendation from 'hold' to 'buy' and revised their target price from 4,703.0p to 5,587.0p.

As an aside, they noted that incorporating the recent acquisition of St.William into their estimates had led them to bump up their forecast for fiscal year 2024 profit before tax by 5.0%, putting Jefferies 10.0% ahead of the consensus, which had yet to incorporate that purchase.