We are maintaining a Hold recommendation on Anglo American, Plc (AAUK). The company is benefiting from strong demand for commodities around the globe and increase production. However, risks to global economic growth remain, and the strength of the South African rand could have a significant impact on future earnings. On February 20th, Anglo American reported full-year results with profit of US$7.3 billion compared with US$6.19 billion in 2006.
The company has a record operating profit of $10.1 billion, with operating profit from core operations up 12% to $8.9 billion. Underlying earnings per share up 18% to $4.40 ($2.2/ADR) There were strong performances from base metals, platinum, ferrous metals and industrial minerals but group revenue slid almost 8 per cent to US$35.67 billion from US$38.64 billion in 2006, in part due to the disposal of the paper and packaging unit. Underlying earnings, which exclude special item, were up more than 5 per cent to US$5.76 billion from US$5.47 billion.
The company credited rising production of iron, copper and zinc, cost control and strong commodity prices for the year-end results. Anglo American also announced that its final dividend would rise 15 per cent to 86 cents per share (43 cents/ADR), bringing total normal dividends for the year to 124 cents per share (82 cents/ADR), a 15 per cent increase on 2006. The stock is trading at 14.3x our 2008 EPS estimate, a multiple above that of its peers at an average of 13x. Our six-month target price is $35. We note that our quantitative model also has a Hold rating on the stock.
Read the full analyst report on AAUK.
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