JPMorgan reiterates ‘overweight’ on Anglo American

JPMorgan Cazenove reiterated its ‘overweight’ rating on Anglo American on Wednesday after it agreed to buy 77% of Teck Resources’ metallurgical coal business, Elk Valley Resources, for $6.93bn.

JPM said the acquisition underscores Anglo’s discount to peers and opportunity to crystallise value.

"For Anglo American, although this likely removes Glencore as a potentially interested party in AAL's Met Coal assets, it underscores our belief that further met coal M&A is likely if the steel sector views coking coal supply security as a critical long-term concern," the bank said.

"It also highlights a potential opportunity for AAL to crystallise value through further reducing its coal exposure (thermal coal exited in 2021)."

JPM estimated that Anglo’s sum-of-the-parts discount of around 24% widens to 34% if it values its Met Coal segment at 5.5x EV/EBITDA.

"Furthermore, we estimate AAL is trading at a material discount to peers on 2024/25E spot EV/EBITDA of 3.4x/3.1x, versus its diversified peers on around 4x.

"Thus, we still see Anglo as offering an inexpensive valuation versus peers with self-help potential & a better near-term turnaround opportunity."