Friday, April 22, 2016

Anglo American: The Fall and Rise

Just seven months ago, I wrote about Anglo American as a potential value opportunity. It subsequently fell a lot further from there, but has now come all the way back and then some. I have taken advantage of the recent optimistic sentiment to sell my shares.

This was a very difficult holding for me. I'm not a big fan of the value destruction that is par for the course among mining managements. Though the company had enough cash to cover its debt obligations for a few years, there was a lot of speculation for some reason that they would be issuing shares. I've seen companies in a lot less trouble than Anglo that issued shares, so the potential for massive dilution started to scare me. It wasn't odd to see double-digit percentage price changes per day on this stock, as Mr. Market's opinions ebbed and flowed through the commodity slump that reigned at the beginning of this year.

But now that the nerves have calmed a bit, the stock is some 250% higher than its low just 3 months ago! Of course, I didn't make anything near that; while I did average down, I also sold on the way up. On some price strength this week, I have now sold my final shares, as the company now trades for more than its tangible book value.

I have no idea if that's what the company is worth; it's really an arbitrary benchmark with which to compare the share price to at this point. The real reason I bought it is not because I think book value is very telling for miners, but rather because I believe the De Beers franchise to be both a cash generator and worth a lot more than its book value, providing some sort of floor on intrinsic value. I can guess a range for where that floor may be, but it'd be rather wide!

I'm still waiting for prices to rise in some other companies in which I invested that have been pummeled by the negative commodity sentiment, but thankfully Anglo American is no longer one.

Disclosure: No position

1 comment:

Anonymous said...

If you're interested - piece from a UK fund holding AA: http://www.schroders.co.uk/en/uk/the-value-perspective/blog/all-blogs/crash-diet/