Anglo American, Plc (JSE:AGL) is a British multinational mining company headquartered in London, England. It is one of the world's largest producers of diamonds, copper, platinum, and nickel. It is listed on the New York Stock Exchange, London Stock Exchange, and the Johannesburg Stock Exchange as well. The majority of its operations is in Africa.
The company provides the metals and minerals that enable a cleaner, greener, more sustainable world and that meet the fast-growing consumer-driven demands of the world's developed and maturing economies.
Anglo American Stock Price
Source: Johannesburg Stock Exchange
As of October 4, 2023, Anglo American's share price has increased by 10% over the past three months and by 82% over the past five years. The company's stock price is currently trading at $13.87. It has a market capitalization of $37.30 billion, a dividend yield of 4.65%, and a P/E ratio of 16.17, according to Google Finance. It is undeniable that these results are very impressive, and there are a number of factors associated with the stock price.
First, the price of commodities. Anglo American's profits are directly linked to the price of the commodities it produces. If the price of commodities falls, Anglo American's profits will also fall. Second, the state of the global economy has led to an increased demand for Anglo American’s products, which has boosted its profits. And third, geopolitical events such as the war in Israel have disrupted supply chains and affected demand for Anglo American’s products.
The main question remains to know whether or not Anglo American’s stock price performance is correlated with its fundamentals. We know that Return on Equity (ROE) is a key measure to assess how efficiently a company’s management is utilizing the company’s capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Anglo American has an ROE of 9.5%, which is similar to the industry average of 9.8%. This ROE is not particularly high. Moreover, the company reported a moderate 11% net income growth over the past five years. Anglo American’s reported growth was lower than the industry growth of 18% over the last few years.
Annual Earnings Growth
Source: SimplyWall Street
Nevertheless, According to Simply Wall Street analysis, Anglo American is set to have a 15.2% earnings growth rate, with future return on equity to be 10.9%. The data show that Anglo American’s annual earnings growth is supposed to outpace industry’s earnings growth and market’s earning growth.
Lastly, it ought to be mentioned that Anglo American has paid dividends over a period of at least ten years, which shows the company’s seriousness and profitability. The future payout ratio of the company over the next three years is expected to be approximately 39%, which means that the company’s future ROE is not expected to substantially change.
While Anglo American presents positive future earnings growth, the low ROE indicates that all that reinvestment is not reaping a lot of benefit to the investors. But this does not mean that Anglo American is a bad company to invest in. On the contrary. It is a profitable company that consistently pays dividends to its investors. From a cash-flow perspective, this is a guarantee. From an appreciation perspective, the growth of the company seems promising based on the earnings growth forecasts.