JPMorgan ups target price on 'undervalued' Anglo American, names miner 'top pick'

Anglo American reported a 4% rise in full-year underlying EBITDA to $9.2bn driven by strong prices on Thursday, particularly in platinum group metals, thermal and metallurgical coal and nickel, as well as thanks to productivity improvements and cost control.

However, the company took a $600m hit from the suspension of operations at its giant Minas Rio iron ore mine in Brazil as upgrades were carried out.

With upgrades to Anglo's operational capacity in mind, JPMorgan said the firm's higher capex guidance since December had led it to reduce its spot 2019/20 free cash flow yield estimates from around 13-15% to 7%-9% at prevailing commodity prices.

In return, Anglo management forecasts 20-25% copper equivalent production growth by 2023 and a $3-4bn increase to its EBITDA by 2022 from productivity initiatives and new projects.

JPMorgan did note that Anglo's free cash flow was now the weakest of its peers but highlighted that it was also the highest growth, which the broker believes undervalues the group as a result.

In addition to upping its target price on Anglo American to 2,290p from its previous level of 2,270p, JP Morgan also reiterated its 'overweight' rating on the miner's shares while singling it out as its 'top pick' among UK Diversifieds.

"AAL is our top pick of the UK Diversifieds. We consider its multiples cheap (~4.0x 2019/20E EV/EBITDA, 9x PER, 9%/7% FCF yield mark to market) and not reflective of a company entering a peer-leading growth phase."