Investment Column: There's more to come from surging Anglo
IMI; Bluebay Asset Management
Our view: Buy
Share price: 2800p (+14p)
It has been difficult to keep Anglo American out of the news in recent months. Earlier this week, the mining giant refused to comment on reports that the acquisition vehicle Marwyn had offered in the region of $6bn for its building materials subsidiary Tarmac, while it has also been put on the defensive by a group of native Alaskans, who say that the group's project in their homeland is threatening a 7,000-year-old way of life.
This is unlikely to worry investors who have seen their holdings climb by 122 per cent in the last 12 months, largely as commodity prices have rocketed around the globe, thanks to the economic recovery. Anglo has a solid range of assets, and yesterday's first-quarter production report showed that output of iron ore, platinum and copper all jumped.
What, in our view, sets Anglo apart from its peers is the fact that the company is under pressure to sell off its non-core assets such as Tarmac after last year getting shareholder approval to spurn an offer from Xstrata to join forces. Investors were promised the Earth in terms of divestures, streamlining and improved performance in return for sticking two fingers up at Mick Davis's bid. In fairness to Anglo's chief executive Cynthia Carroll, we've already seen action and a number of non-core businesses have gone.
Moreover, yesterday's numbers show that the company has also outflanked some of its rivals. Earlier this week, BHP Billiton said that production in several commodities had dipped, while last week Rio Tinto said that copper production had dropped by 16 per cent in the first three months of the year. Anglo trades on 22.5 times full-year earnings, in line with rivals. Our only concern is that Anglo does not pay a dividend. At yesterday's AGM, chairman Sir John Parker said the board would expect to be able to rectify this in the current financial year. So no reason not to buy.
Our view: Buy
Share price: 680p (+36.5p)
Companies bring forward their financial statements for all sorts of reasons, but IMI, the engineering and pneumatics company, gave the market a pleasant surprise yesterday. It had gone early with the announcement, it said, because the outlook for the first half had "materially improved" since its preliminary results in March.
IMI's strength in the first three months of the financial year was driven by its Fluid Power business, where sales are expected to grow 25 per cent. This barnstorming performance is set to more than offset reduction of the company's Severe Services arm, which was hit by lower orders in the middle of the year that are likely to send revenues down by just over 10 per cent. The company also said that visibility is improving and customers are talking "more positively" about future investment programmes, although it warned that: "Macroeconomic conditions remain uncertain, and we remain cautious as to the extent to which this improved momentum can be maintained in the second half."
The group's margin is expected to benefit during the second half from a strong cost-cutting programme and pricing initiatives. Severe Services and indoor climate should return to growth next year and the Fluid Power division's strong performance is expected to run and run. On Numis' valuation of 10.4 times 2010 earnings, there should be some value in the shares in the medium term. That being the case, IMI is a buy.
Bluebay Asset Management
Our view: Buy
Share price: 365.7p (-2.4p)
Bluebay Asset Management, the fixed-income fund house, has had a good quarter, with estimated assets under management jumping by almost 8 per cent in the three months to the end of March. But the really good news was in the detail, with strong sales of emerging market funds. Net inflows over the quarter totalled $3.1bn, of which $846m was down to these.
This is positive because earlier this year the company flagged up the prospect of lower investor returns as credit markets normalised. The prediction has come to pass. But the statement also highlighted the attraction of emerging markets funds, which seem to be rousing interest against the backdrop of normalising yields in Western investment grade bonds.
The demand evidenced in yesterday's update should bring punters back to Bluebay, which trades on a multiple of 15 times Credit Suisse's estimates for 2010, and whose shares have been effectively range-bound since February. After bouncing off a low of around 315p in early February, they were at around 379p at the beginning of March. But since then, they've been fairly quiet, easing to around 365p in recent sessions. There's value here. Buy.
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