Canaccord maintains Anglo American's 'sell' rating but raises target price

Anglo American shares rose on Thursday as Canaccord Genuity raised its target price to 620p from 480p, citing lower debt and a weaker pound against the dollar.

However, Canaccord said it believes the stock is currently overvalued and reiterated a ‘sell’ rating.

“We like the extensive restructuring proposed by Anglo American (AAL) early this year. The core divisions are formed around solid assets, with good mine life duration and decent returns,” the broker said.

“We think that as AAL sells assets, simplifies its structure and decreases its breadth of commodity exposure, it could potentially raise its risk profile should sector dynamics shift unexpectedly.”

Anglo has targeted between $3bn to $4bn in asset sales in 2016, including Coal divestments as well as the $1.5bn sale of Niobium and Potash expected to close in H2 2016.

Canaccord added that while debt and maturities have been a focus in the past year, it believes Anglo will be able to meet its maturities through 2018 and still maintain $4bn of cash on the balance sheet.

“In contrast to being overly concerned about debt, we now consider debt paydown to be the biggest valuation driver into 2017, and view reaching net debt of $10bn or below in 2017 as significant valuation support.”

Shares rose 5.81% to 772.10p at 1017 BST.