Will half year results heat up Anglo Pacific’s share price?

Anglo Pacific had a good 2021 - so good, in fact, that it titled last year’s annual report ‘A record year’. A robust financial performance helped push Anglo Pacific’s share price up at the start of the year, as did rising commodity prices. But will business in 2022 be as good? Investors will get an update when the company reports half-year results this week.

What’s happening with Anglo Pacific’s share price?

Anglo Pacific’s [APF.L] share price has been a strong performer in 2022. The stock is up over 15% since January has easily outpaced the wider FTSE 100. The past two months has seen the stock enjoy some modest gains, likely fuelled by an upbeat second quarter update. However, since mid-April, there has been a wider decline in Anglo Pacific’s share price, reflecting a cooling in fossil fuel prices.

What to expect in Anglo Pacific’s half-year results

Profits for the first half of this year are likely to be driven by thermal coal prices. But how Anglo Pacific balances revenue from fossil fuel royalties and its transition towards metals needed for the energy transition will be closely watched.

Investors already have some clues on what to expect in the results. In a trading update covering 1 April to 27 July, Anglo Pacific said that there had been a record portfolio contribution of $49.2m, up from $13.6m the previous year and the fourth consecutive quarterly record. Total portfolio contribution in the first half of the year was $92.8m, trumping the $85.6m generated for the whole of 2021.

Anglo Pacific said that the second quarter is expected to be the strongest quarter of the year thanks to thermal coal prices. Fossil fuels have been powering short-term revenue generation for Anglo Pacific. Its Kestrel underground coal mine in Queensland, Australia contributed $37.4m, up 12% quarter-over-quarter and light years ahead of the $4.9m it contributed in the same period in 2021.

Any further on how this will affect business when half-year results are reported this week will be closely watched. 

Anglo Pacific bets big on future-facing metals

Coal prices have been driven higher by the EU’s ban on Russian coal imports which has exacerbated an already tight market and Europe. These are likely to remain heightened in the second half of the year. Fitch has upped its coal price forecast for Asian thermal coal loaded at Australia’s Newcastle Port to an average of $320 per tonne this year and an average of $246 until 2026.

Yet, 2022 could well be the peak moment for fossil fuels and longer-term demand could wane as the focus returns to cleaner energy sources. To counter this, Anglo Pacific is planning to be 100% exposed to copper, nickel, cobalt and other future-facing commodities following the run-off of its metallurgical coal exposure, anticipated in 2026.

These metals are crucial to the energy transition. Nickel, for example, is used in renewable energy technologies and batteries, while Anglo Pacific pointed out that cobalt demand is expected to increase by six-fold by 2040. In its 2021 annual report, Anglo Pacific said that 75% of its portfolio is now in battery related materials.

Recently, the company has brought a portfolio of copper and nickel royalties from South32 for an initial $185m in a cash and shares deal. Analysts at RBC commented that the purchase would transform the company’s “longer-term revenue profile” by 50% and bolster its ESG credentials by adding more copper and nickel. In the shorter term, the analysts view the transaction as “dilutive” and have lowered their price target from 340p to 320p.

RBC is still positive on Anglo Pacific saying that the transaction’s costs will be outweighed by its benefits. The analysts reiterated their ‘outperform’ rating on the stock.

Of the five analysts polled by the Financial Times, Anglo Pacific’s stock has a 254.46p median price target, suggesting a 63.5% upside on Friday’s close of 155.6p. Two analysts have a ‘buy’ rating on the stock, while three have an ‘outperform’ rating.