UBS reiterates 'sell' on Anglo American

UBS reiterated a ‘sell’ rating on Anglo American but lifted its target price to 740p from 540p after the miner reported a first half loss.

The company last week reported a net loss of $813m for the first half of 2016, compared with a $3 bbn loss for the same period last year. The loss included a $1.2bn impairment for some of Anglo’s Australian coal assets.

Anglo in February announced plans to exit coal and pare back its exposure to iron ore. The group intends to reduce its mining businesses to 16 from 45.

“We remain cautious on the share as we expect iron ore and thermal coal prices to fall more than 15% in the second half, with copper, diamond and platinum prices to remain depressed (see Miners' Price Review of 7-Jul); we also see potential for earnings per share (EPS) to disappoint in the second half/2017 due to the stronger Rand,” said UBS.

UBS raised its estimate on 2016 earnings before interest, tax, depreciation and amortisation (EBITDA) by 20% to $4.8bn and its 2017 forecast by 8% to $4.6bn following the better-than-expected first half results, driven by foreign exchange movements and lower costs in Kumba, Copper and De Beers.

The bank, however, still predicts EPS to fall by 40% year-on-year in 2017 on lower prices and higher interest.

Berenberg said it lifted the target price as Anglo's balance sheet risk is lower with pro forma net debt down 20% since December 2015 on strong free cash flow and divestments, which in turn allows the miner to be more selective with further disposals.

“We still expect Anglo to trade at a discount to Rio Tinto/ BHP Billiton due to its higher operational leverage until the outlook for Platinum & Diamonds improves. We prefer Glencore as the leveraged restructuring play among UK diversified miners due to its mix and disposals.”

Shares dropped 1.99% to 831.90p at 1003 BST.