So right now I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.
Today I am looking at Anglo American (LSE: AAL ) (NASDAQOTH: AAUKY ) to determine whether you should consider buying the shares at 1,856 pence.
I am assessing each company on several ratios:
Price/Earnings (P/E): Does the share look good value when compared against its competitors?
Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend Cover: Is the dividend sustainable?
So let's look at the numbers:
||3-Yr. EPS Growth
||3-Yr. Dividend Growth
The consensus analyst estimate for this year's earnings per share is $2.14 (down 56%) and dividend per share is $0.74 (no change).
Trading on a projected P/E of 14.3, Anglo American appears to be valued at more than double the rating of its peers in the Mining sector, who are currently trading on an average P/E of around 6. Unfortunately, Anglo American's P/E and negative near-term earnings growth rate give a negative PEG ratio, which cannot help with my analysis.
Offering a 2.7% yield, the dividend is the same as the Mining sector average of 2.7%. However, Anglo American slashed its dividend to zero in 2009 and as a result it is not possible to calculate a three-year dividend growth rate.
Currently, Anglo American's dividend is around six-and-a-half times covered, giving the firm plenty room for further payout growth. However, the dividend cover is forecast to fall this year, to just under three times -- although this still leaves room for the payout to grow.
Historic growth has been strong but has Anglo slammed on the brakes?
I believe Anglo American has seen huge headwinds over the past year. As well as the economic difficulties faced by other miners, the company has also seen structural problems that have seriously affected earnings.
One of the strongest headwinds buffering Anglo American this year were the strikes in South Africa. I believe these strikes have resulted in the loss of 138,000 ounces of platinum, or 6% of 2011 production.
Indeed, around 40% of Anglo American's assets are located within South Africa, which is currently proving to be a very difficult operating environment. I believe Anglo is currently facing skilled labour, electricity and water shortages.
Unfortunately, Anglo American's troubles are not confined to South Africa. Due to licencing issues, the company has been forced to delay the first shipment from a major iron ore project in Brazil. The first shipment will now take place in 2014.
Nevertheless, Anglo has been restructuring. The company has recently doubled its holding in De Beers to 85%, an investment that was funded through the sale of non-core assets such as the Tarmac and Lafarge construction-material operations in the U.K.
Anyway, taking into account slowing near-term growth and the operating problems the company continues to endure, I believe now does not look to be a good time to buy Anglo American at 1,856p.
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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.