Anglo American drops on SocGen downgrade

Anglo American was under pressure after Societe Generale downgraded the stock to ‘sell’ from ‘hold’ and slashed the price target to 250p from 530p, saying things could get worse before they get better.

It said investors are questioning the speed and magnitude of the “radical change” strategy – i.e. downsizing the portfolio – unveiled at the investor relations day last week.

“We think AA has very few options left in terms of reducing its cash needs over and above the already-announced initiatives (cost savings/productivity, capex cuts, dividend cuts, etc.), and more importantly, it could struggle to secure the c.$2bn cash inflow it is targeting from asset sales,” the bank said.

SocGen said it does not think AA should wait until the full year 2015 results presentation in February 2016 to undertake further initiatives, such as raising capital.

The bank said that as it forecasts negative free cash flow next year and positive FCF in FY17, absolute net debt at around $14bn is a real concern, implying around 4.0x FY16e net debt to spot EBITDA before any asset disposals.

SocGen cut its 2015 earnings per share estimate to $0.86 from $1.02, its 2016 estimate to $0.35 from $0.73 and its 2017 forecast to $0.59 from $0.98.

At 0825 GMT, Anglo shares were down 2% to 265.60p.