Jefferies International has given a lift to mining giant Anglo American PLC (LON:AAL) today, upgrading its rating for the blue chip firm to ‘buy’ from ‘hold’.
The US broker also increased its target price for Anglo American to 2,000p from 1,500p, with the FTSE 100-listed shares changing hands at 1,624p each in late morning trade, up 1.2% or 19p on last night’s close.
READ: Anglo American boosts overall production by 6%
In a note to clients, Jefferies’ analysts said: “Based on our analysis, mining sector fundamentals are very strong due to serious supply constraints at existing mines, a lack of supply growth from new projects, stable Chinese demand, and improving demand in the rest of the world.”
They added: “Anglo's balance sheet is no longer a concern, its free cash flow yield should average >14%/yr over the next three years, and it has potential positive catalysts in 2018.”
The analysts also pointed out that, in their view, Anglo is a candidate for corporate restructuring - such as a breakup or as an acquisition target - now that it has a new chairman and a potential activist investor in Vedanta Resources PLC’s (LON:VED) Anil Agarwal, who owns 20% of the shares.
READ: Anglo American up as family trust of Vedanta Resources chairman looks to increase its stake to around 20%
They added: “Even if there are no major corporate changes at Anglo, a sizeable share repurchase is likely this year. “
The analysts concluded: “While we are not bullish on the outlook for platinum group metals or diamonds, we can no longer justify not having a Buy rating on Anglo shares as the AAL valuation is compelling even after the strong performance over the past two years, and positive catalysts may be imminent .”