Wednesday newspaper share tips: Anglo American, Spectris

Some of Anglo American’s moves to right its financials smacked of panic, but there were deeper problems at the mining group, the Financial Times’s Lex column said.

Anglo American’s boss, Mark Cutifani, announced an “unprecedented” $6bn asset disposal and cost savings programme to lower its net debt, which stood at about three times underlying earnings before interest, taxes, depreciation and amortisation.

Just recently, Cutifani had laid out what he said were the company’s 12 core assets, but now he was looking to hive off a third of those.

The company was also aiming to lower its ratio of operating expenses to revenues from approximately 1.2, which was considerably higher than the equivalent metric for rivals Rio Tinto and BHP Billiton, at 0.80 and 0.83, respectively.

However, the outfit will hold on to its Brazilian iron-ore assets that $13bn in costs afterwards - an amount equivalent to Anglo American’s net debt - is three years away from being fully operational.

Cutifani doesn’t seem to be able to slash costs quicker than commodity prices are retreating, the tipster said.

EBITDA margins were also sliding, having shrunk by four percentage points over the past year to reach 21%.

“The problem is not the ‘kitchen sink’ per se. The problem is that it was thrown too late,” Lex concluded.

Spectris is a well-positioned business and the company is “doing all the right things” but at 14.5 times’ earnings and given the state of its markets, there seemed no obvious catalyst for outperformance, The Times’s Tempus said.

The company provides sophisticated instrumentation and controls for pretty well every manufacturing industry on Earth.

Unfortunately, that also meant it was always a prime candidate to be one of the first engineers to have the rug pulled out from under its feet as manufacturing entered a downturn.

A slowdown in US manufacturing hit its industrial controls division, China had slowed and Brazil and Russia were always going to be tough, Tempus added.

Furthermore, headwinds from currency movements cancelled out any potential for increased sales from its recent acquisitions, while a cost-efficiency drive put in place last year came at a cost of £7m.

On the upside, the firm had strong cash-conversion, borrowings were relatively low and there was scope for another big deal.

Nonetheless, “this does not suggest any immediate reason to buy. Avoid for now,” Tempus said.