ANGLO AMERICAN
Latest writedown $3bn to $4bn
On Wednesday BHP Billiton took a $2.8 billion hit on the value of its US shale gas market assets. Yesterday Anglo American announced a writedown of $3 to $4 billion, mainly on its huge Minas-Rio Brazilian iron ore mine which should reach full production in the middle of next year but also on Australian coal.
These were the first shots in what looks like being an uncomfortable reporting season for the global miners. Both BHP and Anglo chose to use production reports, which come a few days before the financials, to announce the writedowns, quite possibly to take some of the sting out of the latter.
Rio Tinto and Glencore report over the next few weeks. Rio yesterday chose to cut back expectations of iron ore shipments, though it mainly blamed the weather in Australia. Other writedowns look plausible as the season continues.
Minas-Rio has already been the subject of two earlier writedowns, totalling $7.8 billion, the most recent this year. That was to do with the price of iron ore, the previous one to problems at bringing the mine on stream.
On the positive side, the mine will be profitable even at the current price of iron ore. This comes as Anglo is halfway through a three-year turnaround initiated by Mark Cutifani, the chief executive for two years, which requires $3 billion of sell-offs. One, of its half-stake in Lafarge Tarmac, was finally agreed this week and will bring in $1.4 billion. The rest, various secondary copper assets in Chile and platinum mines in South Africa, are said to be under way, but with commodity prices where they are — copper hit a six-year low last week — this is not a great time to sell.
Some analysts suggest that Anglo is a two-way bet, in that Mr Cutifani will either get it right or someone will take advantage of the discount the shares are selling at against the rest of the sector and break it up.
That sounds unlikely to me. The main question for investors is whether the dividend will be cut for the first time since 2009. I would expect a cut when Anglo reports halfway figures next Friday, which means the end of the support given by a 6 per cent yield. I would not be buying the shares, up 16p at 890¼p, just now. Or other miners, either.
MY ADVICE Avoid
WHY The next few weeks are likely to see disappointing figures from the miners, and a possible dividend cut from Anglo American
BIG YELLOW GROUP
Closing occupancy rate 75.5%
Big Yellow is another of those stocks, like Workspace yesterday, that has ridden the seemingly unstoppable property boom in London and the southeast. The difference is that the company, known for its distinctive self-storage depots, reckons there is not a lot of point in building that much more.
The odd opportunity comes up. There is a new store in Enfield, north London, while another in Cambridge opens early next year. But the growth — and the company expects to double earnings over the next seven years — will mainly come from getting the highest returns from the existing estate.
This will require raising occupancy levels, 76 per cent at the end of the first quarter to the end of June, to the mid-80s, well above the level they peaked at before the recession. This, if the company is right and there are formidable barriers to new entrants into the market in terms of available sites to build on, will mean rates will grow 5 to 6 per cent a year.
The consequence should be 10 per cent earnings growth a year, allowing that seven-year target to be met. The first quarter, and this is becoming a constant refrain in this season’s trading statements, was held back by the election, Big Yellow being reliant on people moving house and businesses expanding.
As a Reit, Big Yellow pays out 80 per cent of earnings in dividends. While the yield on the shares, up 21p at 694p, is only about 3.5 per cent, that and the expected capital growth makes the shares worth holding for that income alone, if you believe the southeast property market will continue to keep growing.
MY ADVICE Hold for income
WHY Better performance from existing outlets
LAVENDON GROUP
Rise in group rental revenue 1%
The board at Lavendon admit themselves somewhat aggrieved that the recent problems at HSS and Speedy Hire, the two biggest comparators in the plant hire sector, should have dragged their shares back as well.
Certainly there was not a lot to complain about in the trading update, and the shares ended up 1½p at 183¾p. The difficulties at the other two are clearly company-specific; Lavendon, which rents out heavy access equipment, is equally tied to the construction cycle, and there was a degree of pre-election slowdown in the UK, about half the business.
This reflected a number of projects being put on hold, and a strong performance in June suggests the lost work will be regained by the end of the year.
Lavendon is sufficiently confident to pull forward about £20 million of capital spending from next year to this, mainly to be deployed in the UK and the Middle East, where work is picking up again. Europe was a mixed bag after the end of a big project in Belgium, though France was unexpectedly strong.
The shares sell on almost 11 times earnings and are a straight proxy on the construction cycle.
MY ADVICE Buy long term
WHY Shares are not prone to problems that have hit rivals
And finally . . .
Experian’s results, announced in May, were a touch disappointing, showing sluggish rates of growth in some markets. The credit checker, a good proxy for world economic performance, has been among the most reliable performers in recent years, and I suggested at the time that they were good for the long term. The first-quarter figures show some return to form despite a flat outturn in North America. Foreign exchange rates are an inevitable headwind, but it looks like time for the shares to make progress again.
