MIDAS STOCK ADVICE UPDATE: Anglo Pacific Taps Richer Profit Vein
MIDAS STOCK ADVICE UPDATE: Metals group Anglo Pacific taps into richer profit stream
Anglo Pacific is an unusual beast. The group makes royalty-based investments in metallurgical and mining assets, lending them money in return for a share of their current and future revenues.
Most royalty companies focus on precious metals. Anglo prefers the non-precious variety and is the only publicly listed company of its kind, with 19 different investments around the world.
Midas recommended Anglo in 2014 when the stock was £1.05. Today the shares are at £1.58 and are expected to continue higher.
Diversification: In recent times, Anglo Pacific has been gradually moving away from fossil fuel related assets and into metals deemed essential for a low carbon world.
Anglo has traditionally been associated with a key investment – a coal mine in Australia owned by Rio Tinto. This asset still plays a huge role in the business, accounting for almost 80% of the group’s revenue in the first half of this year, after a spike in coal prices following Russia’s invasion of Ukraine.
But, of late, Anglo has gradually moved away from fossil fuel-related assets and into metals deemed essential for a low-carbon world.
The transition was largely led by Marc Bishop Lafleche, who joined Anglo in 2014 as an investment manager and gradually rose through the ranks, becoming chief executive in April this year.
Laflèche is determined to make Anglo a company that will benefit from long-term commodity trends, namely the growing demand for metals such as copper, nickel, cobalt and vanadium, even if supplies remain tight. As part of this strategy, Anglo has made several acquisitions over the past two years, including the $185m (£155m) purchase of a nickel and copper royalty group in Australia and in Chile just last month.
Abandoning coal is not only based on environmental concerns, but also financial ones. The Kestrel royalty stream is due to run out in 2026 and Anglo needs to replace it so the business can grow and pay attractive dividends. The next few years could be tough, but recent deals have made Anglo much more resilient.
Revenue is expected to more than double this year from $85 million to $175 million due to these exceptionally high coal prices.
Turnover is then expected to fall back in 2023 and 2024, but dividends will remain stable at around 7 cents (5.9 pence), putting Anglo on a dividend yield of 3.6%.
Turnover and payouts should then start to increase, as prices for environmentally friendly metals rise and new investments from Anglo generate increasing amounts of cash.
Midas verdict: Investors who bought Anglo Pacific shares in 2014 had a decent run and also enjoyed generous dividends. Those with a short-term horizon could sell now at £1.58 and take the profit. Long-term investors should stick with the stock – and even buy stocks at current levels. Governments around the world have committed to a green agenda and Anglo is well placed to benefit.
Traded on: main market Teleprinter: APF Contact: anglopacificgroup.com or 020 3435 7400