leadf
logo-loader
viewAnglo Pacific Group PLC

Anglo Pacific still a 'buy' for Berenberg, as rising Kestrel income opens up growth opportunities

"With the new operator of the Kestrel mine, accelerating the production rate, Anglo Pacific will benefit from rising income in 2020-21”

Anglo Pacific Group PLC -

Berenberg has spied growth opportunities at mining royalty specialist Anglo Pacific Group PLC (LON:APF), reiterating a ‘buy’ recommendation on the stock.

The London-listed mining royalty company, which focuses on commodities like iron ore and thermal coal, said in November that it was on track for a record year.

Income for the first nine months of 2019 had risen by 39% to £46mln and looks on course to comfortably to beat last year’s £46.1mln, which Anglo Pacific said was down to a substantial production rise at the Kestrel coal mine in Australia helping to offset weaker coal and vanadium prices.

READ: Anglo Pacific on course for record revenues and more acquisitions

In a note to clients on Monday, the German investment bank's analysts said: “With the new operator of the Kestrel mine (Adaro acquired it from Rio Tinto in 2018) accelerating the production rate, Anglo Pacific will benefit from rising income in 2020-21.”

“We believe it is likely to reinvest the proceeds in acquisitions ahead of mining progressively moving out of the Kestrel royalty area from 2022,” the added, noting that poor royalty income between 2014 and 2016 had suppressed Anglo Pacific's acquisition plans.

As Kestrel has improved and “more recently acquired royalties” such as LIORC and Mantos have started supplying cash, Berenberg's analysts said they expected that this will “unlock an ability to finance growth with only limited equity issuance out to 2025”.

They highlighted five acquisitions over the last six years with an“average” deal cost US$50mln that have delivered US$6mln of annual royalty income.

According to the analysts, this means Anglo Pacific will need to spend between US$450mln and US$500mln on acquisitions to replace the Kestrel income by 2025, or around two deals a year, which “feels achievable” given the accelerating pace of Anglo Pacific’s investments.

Back in November, Anglo Pacific said that it was looking at investment opportunities, helped by weakness in commodity prices as well as ongoing global economic uncertainty.

Berenberg's analysts trimmed their price target for Anglo Pacific shares to 213p from 235p, saying this reflected recent drops in coal prices, lower iron-ore pellet premiums, lower vanadium prices and forex movements.

“Despite this, the Buy case remains clear,” the analysts concluded.

Anglo Pacific shares, which have risen by 30% over this year, took a slight dip of 0.5% to 184p in afternoon trading on Monday.

Quick facts: Anglo Pacific Group PLC

Price: 104.6 GBX

LSE:APF
Market: LSE
Market Cap: £190.12 m
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

In exchange for publishing services rendered by the Company on behalf of Anglo Pacific Group PLC named herein, including the promotion by the Company of Anglo Pacific Group PLC in any Content on the Site, the Company...

FOR OUR FULL DISCLAIMER CLICK HERE

Anglo Pacific 'well capitalised and focused on growth' ahead of stronger...

Anglo Pacific Group's (LON:APF) Kevin Flynn discusses its interim results to June 2020. He says while they've reported a decrease in revenue it's important to remember that the period was very much impacted by the uncertainty around coronavirus. ''A key highlight for us is that the vast majority...

3 weeks, 4 days ago

2 min read