On Wednesday, Citi updated its financial outlook for Anglo American (JO:AGLJ) Plc (AAL:LN) (OTC: NGLOY), raising the mining giant's price target to £28.00 from £25.00. The firm continues to recommend a Buy rating for the company's shares.
The revision reflects a positive view of the value of Anglo American's copper business, which has become increasingly apparent due to a significant rally in the value of copper-focused companies.
The analyst's note highlighted that Anglo American's copper operations, despite recent operational challenges, account for about 40% of the company's EBITDA. This segment of the business is estimated to be worth approximately £30 per share based on 2025 copper price forecasts of $10,500 per tonne and the valuation multiples of copper-focused peers. This valuation suggests a potential 35% premium to the current share price.
Citi's analysis suggests that Anglo American's Sum-of-the-Parts (SoTP) valuation, which excludes its listed subsidiaries such as AMS and KIO, has been undervalued.
The firm pointed out that while investing in companies solely based on their SoTP valuation can be risky, the substantial potential upside could lead to strategic corporate actions. If the market continues to undervalue Anglo American's assets, it could prompt a company break-up to realize the full SoTP value, which could represent an estimated 100% upside from the current levels.
The note from Citi comes amid a broader rally in the copper industry, where pure-play copper companies have seen their stock prices increase by 50%. This surge has cast a spotlight on the intrinsic value of copper businesses like that of Anglo American. The firm's decision to raise the price target is based on these market dynamics and the robust fundamentals of Anglo-American's copper segment.
In conclusion, Citi's updated price target for Anglo American is set at £28.00, with a continued endorsement of a Buy rating for the stock. The new target reflects the firm's confidence in the value of Anglo American's copper business and the potential for significant upside if the current market undervaluation persists.
InvestingPro Insights
As Citi raises its price target for Anglo American Plc, investors are paying close attention to the company's financial metrics and market performance. According to recent data from InvestingPro, Anglo American's market capitalization stands at a robust $8.53 billion USD, indicating its significant presence in the industry.
InvestingPro Tips suggest that Anglo American's net income is expected to grow this year, which could be a driving factor behind the positive outlook from analysts. Moreover, the company's stock has delivered a strong return over the last three months, with a 7.5% increase, reinforcing the bullish sentiment around its market performance.
However, it's worth noting that the stock's Relative Strength Index (RSI) suggests it is currently in overbought territory, which could imply a potential pullback or consolidation in the near term. This is an important consideration for investors looking to time their entry into the market.
For a deeper dive into Anglo American's financials and additional InvestingPro Tips, including the company's valuation multiples and profitability predictions, investors can visit InvestingPro. With the provided coupon code PRONEWS24, users can also get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 7 valuable InvestingPro Tips for Anglo American.
InvestingPro Data metrics reveal that Anglo American is trading at a high earnings multiple, with a P/E Ratio (Adjusted) of 4.7 as of the last twelve months as of Q4 2023. The company's revenue growth over the same period was 7.79%, which may contribute to the expected increase in net income. Additionally, the company's operating income margin was 7.66%, reflecting its ability to turn revenue into profit effectively.
With these insights, investors can better understand the financial landscape of Anglo American and make more informed decisions in the context of the company's prospects and market valuation.
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