Anglo Pacific - can that yield be real?

Anglo Pacific: This little followed resource royalty stock is a real conundrum of a small company. A new chapter started when Julian Treger, most well-known for his stint at Active Value Investors Ltd., became CEO in October 2013. He set out a plan to re-configure the group’s portfolio of royalties and make the group more dynamic. However, he arrived at a time when income from their Australian Kestrel coal royalty (where Rio Tinto is a key operator) was in a slump partly due to mining activity being concentrated outside their royalty acreage. Naturally, the bear market in many commodity prices has not helped.

Looking forward, the group says that Kestrel will see their acreage become more active, with a subsequent benefit to Anglo. As for commodity prices, it is a lottery as to what happens next, but my gut feel is that most of the pain has now been taken. Today the group has announced a new £42.8m royalty acquisition, Narrabi, tied to Whitehaven’s NSW coal project. The mine life is given as 22 years, with the potential to extend this. Of the acquisition cost, £39.5m is in cash and £3.3m in shares, alongside a placing of new shares expected to raise between £29.6m and £42.8m.

At the same time they have issued a new dividend policy, with a stated intention to pay a final dividend of 4p for 2014. This makes a total for the year of 8.45p, down from 10.2p in 2013. The share price spent much of the early part of 2014 at 175p, but at the current 82p this is still a yield of 10.3%. Going forward they are targeting a minimum dividend of 8p, although they have left plenty of wriggle room. Still, 8p is a 9.8% yield. They then indicate a minimum payout of 65% of adjusted earnings. I have seen an eps forecast of 14p for 2016, although who really knows. At the 65% payout level that would be 9.1p though, for a yield of 11.1%. I won’t even do the maths on the 52p of eps in 2010. If you see hope for commodity prices, such as coal, then this share could be a way to get good exposure. But it comes with heavy caveats about recent track record, small market cap., and deliverability. (Neil Cumming^, 4^th February 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower