Investors seeking potential growth need look no further than Anglo American PLC (LSE:AAL), a major miner with diversified operations across the globe.
A recent deep-dive analysis by Citi offers promising insights into the stock, revealing a potential upside from operational improvements.
Over the past two years, AAL went from being perceived as a top operator among large diversified miners to a laggard.
This shift has led to a share price underperformance against its large-cap peers by 12.8% per annum over the last three-plus years. However, according to Citi, there is a significant potential for a turnaround.
Its report explains that even without an increase in commodity prices, a return to pre-pandemic operational efficiency could add $3.5 billion to earnings before interest, taxes, depreciation, and amortisation (EBITDA), a positive 30% change to its 2023 estimate.
Moreover, the turnaround could enhance the net present value (NPV) by £10 per share, an impressive 41% boost to the share price.
Diverse portfolio
AAL's portfolio is robust and diverse, including operations in diamonds through De Beers, Copper, platinum group metals, iron ore, steelmaking coal, nickel, manganese, and crop nutrients.
The company's resilience is evidenced by its various projects, including the Quellaveco copper project in Peru and five operating mines in its steelmaking coal business.
This diversified business model provides a strong defence against market volatility, with various segments capable of compensating for downturns in others.
Enabling metals
AAL's recent results further bolster the bullish stance, with a strong emphasis on future-enabling metals.
Its commitment to mining operations that aligns with global sustainability and infrastructure needs puts them in a favourable position to capitalize on long-term trends.
The company's investments in the copper and nickel sectors, vital for electric vehicle batteries and renewable energy technologies, demonstrate forward-thinking that aligns with a green energy transition.
And finally...
Given Citi's compelling analysis and the company's diverse portfolio, Anglo American would seem to present an enticing opportunity for investors.
The prospect of a 41% increase in share price based on pre-pandemic operational efficiency is a persuasive argument for investment.
Moreover, the company's focus on future-enabling metals and alignment with sustainability trends positions it well for long-term growth.
However, the City of London seems split. Of the 19 banks and brokerages covering the miner, nine are fans of the stock, and another nine think it's fully valued. There is one outlying 'seller'. The consensus price target of £26.86 suggests there is around 12% upside from current levels.
All of this suggests there is agreement that AAL shares are undervalued. However, none of the valuations gets close to Citi's bull case target of £40. So, tread carefully on that one amigos.