Liberum, the investment bank, has adjusted its stance on two major players in the mining sector: Anglo American PLC has been upgraded to a 'buy' status, while Glencore PLC (LSE:GLEN) has been downgraded to 'hold'.
Anglo's underperformance, particularly in its PGM and diamond segments, has been a notable concern. However, Liberum anticipates a turnaround.
It expects supply discipline to emerge in response to price weaknesses, particularly in the PGM sector. This discipline, coupled with an end to downstream destocking, is likely to lead to a recovery in prices and performance. Downstream destocking refers to the reduction of inventory in the supply chain, which can impact demand and prices of raw materials.
By contrast, Glencore's re-rating journey seems to have plateaued, Liberum reckons. Anglo American's current 12% spot operating free cash flow (FCF) yield starkly contrasts with Glencore’s 6%. FCF yield is a financial metric that shows how much cash a company generates relative to its market value.
This difference, combined with the potential short-term gains in PGM, positions Anglo American as Liberum's preferred choice in the diversified mining sector, Liberum's mining team concluded.
In mid-afternoon trading, Anglo American's shares were changing hands for £22.40, more or less flat on the day, while Glencore's stock was off 1.7% at 449.4p.