Exane says risk/reward at Anglo 'balanced' after recent run

19th Feb 2014 11:39

Exane BNP Paribas has lifted its target price for Anglo American from 1,600p to 1,650p after a better-than-expected set of annual results from the mining giant on Tuesday.However, the broker kept a 'neutral' rating on the stock, saying that the risk/reward is now "balanced" after its recent strong run. By the close on Tuesday, the shares had risen by over 20% since the start of 2014."The downgrade cycle seems to be coming to an end, and the restructuring potential is significant. On the other hand, an in-line valuation on FY14-15e earnings metrics, cash burn in the next two years, and the above-average political risks lead us to maintain our 'neutral' stance," Exane said.Anglo reported a 6% increase in underlying operating profits to $6.6bn in 2013, 2% above Exane's estimate and 8% higher than consensus forecasts, due to strong platinum and copper results.Despite the "encouraging" results, Exane said that there is "still a bumpy road" to the 15% return on capital employed (ROCE) target.Around $0.8bn of the total $4bn operating cash flow needed to achieve the 15% ROCE target has already been captured; but $0.5bn is yet to be identified "and may lead to hard restructuring in met coal or nickel".Anglo was trading 1.3% lower at 1,566.5p by 11:38 on Wednesday, following a 2.3% rise the day before.BC