It took a brave investor to buy shares in global mining groups during the worst of the commodities rout — and particularly to buy Anglo American (Emily Gosden writes). Deemed “the most likely of the diversified majors to go bust”, by late 2015 its future was a matter of open speculation. “The company is clearly determined to try to survive or go down fighting but we will have to reserve judgment as to which is likelier for the time being,” wrote analysts at Shore Capital.
Those that did bet on its survival have been handsomely rewarded. Less than four years on, shares are worth almost ten times their January 2016 nadir. Yesterday the company reported its best half-year results since 2011, with underlying earnings up 19 per cent to $5.5 billion aided by buoyant iron-ore prices, and rewarded investors by announcing a $1 billion share buyback.
The main question over its future now seems to be how much higher its shares can rise, especially after Anil Agarwal, the Indian tycoon behind Vedanta, last night said he was taking profits by exiting his 20 per cent interest in Anglo, acquired in 2017.
Anglo American, founded in 1917 in South Africa, still has more operations in the country than anywhere else in a portfolio that stretches from South America to Australia. It is listed in London and Johannesburg and employs about 64,000 people producing copper, iron ore, coal, platinum and diamonds, through De Beers, and other commodities.
Anglo’s recovery over the past few years has been driven by a radical streamlining of the portfolio and overhaul of the operating model. Last year, the company produced 10 per cent more than it did in 2012 from just half the number of assets.
Production dipped by 2 per cent in the first half of this year in part because of reduced diamond production at De Beers amid lower demand. This should be a temporary blip; by 2023, Anglo is forecasting significant production growth of about a fifth from today’s levels.
The most eye-catching of the projects driving this growth is the $5 billion Quellaveco mine, high in the mountains of southern Peru. Anglo’s biggest new mine in more than a decade is expected to produce 300,000 tonnes of copper per year, compared with group production last year of about 668,000 tonnes.
While such big new projects carry execution risk, there are easier ways of driving the forecast growth, such as getting more production out of plant and equipment, and expansions at existing sites.
Anglo expects these projects not only to increase production growth but also to be more profitable than many of its existing projects, so boosting mining margins, which stood at 42 per cent last year, to nearer 50 per cent by 2023. They were 46 per cent in the first half.
With a potential 20 per cent rise in production and a potential 20 per cent increase in margins, this all adds up to the possibility of growing earnings by two fifths or more over the next few years, opening up scope for plenty more shareholder returns.
There are also attractive prospects for longer-term growth including significant potential expansions of its Los Bronces and Collahuasi copper mines in Chile. Anglo believes such developments offer a route to more than offset declines in its portfolio and deliver copper production of 1 million tonnes per year, perhaps in the second half of the next decade.
With electrification expected to bear down on copper supplies, this looks promising but it all depends on delivery. Mark Cutifani, who has led Anglo since 2013 and overseen the stellar recovery, may not remain in post long enough to oversee many of these developments. Still, on present form these shares have further to go.
ADVICE Buy
WHY Strong growth prospects should drive higher production and profitability
National Express
Don’t just sit there feeling stressed, take a trip on the National Express. So sang The Divine Comedy’s Neil Hannon as long as 20 years ago (Robert Lea writes). Sadly, National Express never took on the hit single as an anthem, probably because of the slightly rude lyrics about the size of the coaches’ hostesses and the cost of onboard refreshments, neither of which exists any more.
But transport sector investors who took Mr Hannon’s advice at any time over the decade that the chief executive Dean Finch has been in charge will, in another line from the hymn to coach travel, agree that it’ll make you smile. Over ten years, the stock is up 140 per cent. In the two and half years since it got out of the UK railways it is up more than 25 per cent.
National Express, a company born out of the Thatcher privatisations, controls 60 per cent of the UK coach market, dominates the buses in the West Midlands, is Spain’s largest coach and bus operator and is one of the leading players in school yellow buses in the US.
The question of whether National Express can keep repeating the trick of harvesting earnings from its market-leading businesses and avoiding black holes such as UK railways is answered in its latest half-year results: revenues up 9 per cent at £1.34 billion and pre-tax profits up nearly 11 per cent at £114 million.
Much of that growth is coming from artificial intelligence: from the company harvesting data from its millions of customers and letting the algorithms tell it where its vehicles should be travelling, how much they can charge and how long prices can be held to either reap peak demand or stimulate patronage in quieter times. And the company is promising rich new growth in the US from jumping on the corporate shuttle bandwagon for the likes of Google and Facebook, which are under pressure to get their employees to ditch the private car.
Analysts think there’s still plenty of fuel in the National Express tank and are advising share price targets of between 480p to 500p. That is a 9 per cent to 14 per cent upside to where the shares closed last night on a stock yielding nearly 4 per cent. Hop on board.
ADVICE Buy
WHY Revenue management systems are putting fuel in tank
