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Anglo Pacific shares are cheap says Berenberg

An improvement in coal pricing will drive a share re-rating in the near-term, the analysts said

Anglo Pacific Group PLC -

Anglo Pacific Group PLC (LON:APF) shares are “cheap” at less than 0.7 times net asset value, analysts at Berenberg said in a note on Monday, expecting the company to maintain its quarterly dividend.

The German bank reiterated a ‘buy’ recommendation on the company as it updated its forecasts for the royalty group after recent events, including publication of results from Adaro Energy, the operator of Queensland’s Kestrel mine, over which Anglo Pacific holds a royalty.

Adaro’s second quarter production and sales of 1.21mln tonnes and 1.27mln tonnes were both higher than expected, though Adaro reduced 2020 production guidance for the mine to 6mt from 7.2mt. 

While the reduction will hit estimates for this year, it pushed up forecast attributable production and revenue assumptions for 2022, as mining will stay in the Anglo Pacific royalty area for longer.

Recent results and guidance from Labrador Iron Ore Royalty Corporation (LIORC) were weaker than expected, which together with Kestrel results in a reduction to 2020 royalty income to £39mln from £47mln, but Berenberg still forecasts earnings per share of 13p for this coronavirus-affected year, rising to 19p for 2021. 

Analysts said: “We believe that the company will maintain its quarterly dividend of 1.75p per share, with the stock currently yielding 8%, given its balance sheet flexibility and expectations of improving commodity prices.”

They added that an improvement in coal pricing will drive a share re-rating in the near-term, with measures to address 2022 revenues being “the key catalyst for a material re-rating”. 

Berenberg’s price target moved to 160p per share, versus the latest close price of 112.2p, after a strengthening of sterling.

The shares were up over 1% to 113.84p on Monday afternoon.

Quick facts: Anglo Pacific Group PLC

Price: 99.8 GBX

Market: LSE
Market Cap: £176.77 m

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