Anglo Pacific Group plc (LON:APF) Chief Executive Officer Julian Treger caught up with DirectorsTalk for an exclusive interview to discuss their 2017 Q4 and year-end trading update
Q1: Last week we saw a pretty impressive update to the market, what caused the increase in income?
A1: Well, I think it’s a number of factors all coming together, it’s the 3rd year since I joined Anglo Pacific when income has roughly doubled.
First of all, we are seeing, generally, commodity prices going up, we’re in early stages of the next cycle. Secondly, the commodities that were exposed to did particularly well, namely vanadium and two types of coal; coal used for iron ore and coal used for energy. Thirdly, we also saw bigger volumes and our share of those volumes going up in the mines which underlie our royalty portfolio.
So, a combination of all of that meant that our income doubled again.
Q2: Do you expect that this trend will continue?
A2: I think the trend will continue, I don’t think organically we will double again this year, but the good news is that the commodity prices in the areas that we’re interested in expanding have opportunity to go up and there is some further organic growth in the portfolio.
Also, we have a very strong balance sheet and the financial where we thought to make acquisitions which should add to the bottom line.
Q3: Talking about that balance sheet, you’ve got more than £8 million of cash, what is the strategy for growth going forward?
A3: So, we have £8 million of cash, we also have no debt and we have an undrawn facility of $40 million which I think we could add to if we found some attractive acquisitions and we have a non-core equity portfolio of between $15-20 million. So, altogether we have quite considerable fire power.
Last year, we made two acquisitions, one large producing royalty and one development one towards the end of the year. I think this year we’d like to increase that run rate to three or four because there’s an enormous fragmented world of opportunities out there for Anglo Pacific as the only global non-precious focussed royalty company. We think that we can and should be accelerating the rate of growth at this stage in the cycle.
Q4: You’ve increased the dividend again; can you continue to cover this progressive dividend?
A4: Absolutely. This year we’ve announced that even though we’ve increased the dividend, the dividend should be between 2 and 3 times covered and if we can continue to grow the top line and make acquisitions then coverage should go up. We believe that we should give our shareholders part of the growth that we’re seeing whilst also investing further significant growth since we’re at the beginning of the cycle. So, on a running basis, actually for the next 12 months, investors should receive over 70 in income compared to our share price which is under 150p so it’s a very healthy and well-covered dividend yield.
Q5: Finally, what should investors expend from Anglo Pacific Group in 2018?
A5: I think we should see continued growth, we should be seeing a number of acquisitions, hopefully most of those depending upon size can be funded organically. As we grow and make acquisitions, we should also see increasing dividends as we share the benefits of that growth with shareholders and we are at the early stages of the cycle.
The other thing is, of course, that we will be trying to grow in areas where we think there’s a lot more investor interest so we’re trying to pivot our portfolio away from coal and other commodities towards more copper, nickel, zinc and other components for batteries and electric vehicles. As that pivot continues, we think that our rating should improve from a PE ratio of something well under 10 times and cash flow multiple of plus 5 times to something much higher so you could also see significant growth in the rating of the business and the share price as we complete that strategic shift.