Bernstein downgrades Anglo American after BHP exit

Investing.com -- Bernstein downgraded Anglo American PLC (LON: AAL) to “Market-Perform” citing a more balanced risk-reward profile after BHP Group (NYSE: BHP) withdrew its interest in acquiring the miner.

The “BHP Put,” called a safety net by brokerage for Anglo’s shareholders, is no longer in play, reducing the margin of safety underpinning its prior “Outperform” rating.

BHP’s decision was attributed to valuation divergences according to media reports. BHP shares have underperformed Anglo by over 30% since April 2024, making an all-share deal expensive. Alternative financing options, including raising debt or equity, would either stretch BHP’s balance sheet or signal a desperate need for acquisitions, analysts said.

“The BHP Put was part of our belts and braces Outperform thesis as it gives Anglo’s shareholders a safety net, in case the current management disappoint,” analyst said.

While Bernstein praised Anglo’s 2024 progress, including its met coal demerger and cost-saving efforts, the lack of the BHP backstop shifts focus to management’s ability to deliver sustainable improvements. The brokerage maintained its price target for Anglo at GBP26 per share.

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