Sirius Minerals buyer Anglo American no longer ‘top pick’ as RBC warns takeover, coronavirus will dent cashflow
In a note on Monday downgrading the FTSE 100 firm to ‘outperform’ from ‘top pick’ and cutting its price target to 2,300p from 3,000p, the bank also warned that an explosion and backup failure at the company’s platinum group metals (PGM) converter in South Africa last week will hit cashflow for 2020 “significantly”.
Anglo is also not immune to the coronavirus pandemic sweeping the globe, RBC said, with its De Beers diamond business seeing a slump in sales as the outbreak hit demand for precious stones in Asia.
“We think Anglo’s balance sheet remains strong, although this is not ideal with emerging risks to the global economy from [coronavirus]”, they said.
With both PGM and diamonds suffering declines and the Sirius transaction also draining cash away, RBC said the outlook for Anglo’s 2020 financial year had “deteriorated rapidly”, although it stressed that there were “still reasons for optimism”.
“[Anglo] still screens as attractive on our base case. Although net debt moves up near term, the compelling valuation, attractive growth and still fundamentally sound balance sheet, with further operational and technological gains to be achieved, leaves Anglo still providing plenty of attraction for long-term investors, in our view”, analysts said.
Investors, however, were less hopeful as the shares tanked 9.6% to 1,519.6p in mid-afternoon trading.