Sunday share tips: Anglo American, Rolls Royce

6th Jan 2013 20:52

Two major catalysts for share-price performance are looming for embattled miner Anglo American. These are a final update on the expected cost implications at Minas-Rio and, most importantly, its platinum bussiness review. This has prompted The Sunday Telegraph´s Questor team to move to a buy stance from neutral on its shares.The key at its platinum operations is for the company to be able to move the whole operation lower down the cost curve - i.e. Anglo needs to produce platinum cheaper than its competitors because platinum prices are expected to track to the cost of production at the more expensive players. However, all this will have to get through the machinations of South Africa's government.In fact, for some brokers the outcome of the restructuring will determine just what price the company´s shares will be able to command in the market - a failed restructuring could see the outffit break-up - when it gets taken over in the next couple of years.The above comes as Anglo's return on equity - a key measure of profitability - fell to 8% in the first half of 2012. This was the miner's worst investment return since the Great Depression. On the positive side, the company´s previous Chief Executive -Cynthia Carroll - improved the miner´s safety record, reduced the firm´s country-risk profile and diversified its product range, with its diamond operations possibly set to benefit from rising prices in the next couple of years.Defence is still a good sector, with the added fillip that 53% of Rolls-Royce´s sales come mostly from recurring service contracts, and the civil aviation market looks set to boom. Hence, the company´s shares are a buy, Questor claims, an investigation by the SFO not withstanding.Yes, military spending is currently going through a squeeze, but budgets are unlikely to wither away completely.As well, Rolls, which generated a fifth of its sales in 2011 from defence, should escape the worse of the cuts. The turbine maker provides critical equipment and benefits form long-term contracts to maintain the engines and replace their parts.Demand for military engines over the next 20 years could be around $155bn, Rolls estimates, and for services and support equipment $260bn.Civil aviation, furthermore, looks set to boom. According to data from the International Civil Aviation Organisation (ICAO), some 2.9bn people used air transport in 2012 and the ICAO expects the industry will see 6bn people flying each year by 2030. There should also be good growth in Rolls' marine business, where it makes systems for offshore oil and gas, merchant and naval vessels. Its power generation business, which designs and manufacturers turbines for nuclear, oil and gas power plants also has strong prospects.The shares are trading on a December 2013 earning multiple of 14.2falling to 13. The prospective yield is 2.4%.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB