What’s the point of analysts?

Friday, Jan 22 2016 by

Stock market analysts have a mixed reputation. The best of them know their industries better than some of the participants and it is not unknown for analysts to make the transition to management. That said, not all of them are free thinkers and it can be a soft life to simply parrot the corporate press releases and, in effect, become an extension of the investor relations department.

It is hard to say if the trend is towards the latter because ever tighter rules on disclosure and what is and what is not inside information make truly original research harder.
In some sectors though you don’t need to be a genius to understand what is going on. The most obvious is in the commodity industries of oil and mining where terminal markets for oil, copper and now iron ore make it clear to everyone what is happening to revenue in a way that is not possible in more secretive businesses like banking or insurance.

Oil and metal prices started falling in the autumn of 2014 and carried on declining relentlessly throughout 2015. To be fair to the analysts it is unlikely that they were using the high spot prices of early 2014 in their models for longer term forecasts. Yet, at some point spot prices would have crossed over and fallen below those longer term projections. That was probably last summer when the Glencore share price halved as investors finally got the message that its business model of high cost mines and a highly geared balance sheet were not a good mix in a world of lower prices and higher interest rates.

As is always the way share prices reacted far more rapidly than analysts could change their forecasts, so the shares looked cheap for a long time, especially when allowance was made for the stronger dollar which was related to the other two factors. The information void was not helped by companies, and by extension their spokespeople the analysts, saying that things were not really that bad. Investors were in no mood to be trusting after so many cases of corporations, like Tesco and VW, attempting to reassure investors with platitudes after misleading them.

Even now some analysts are forecasting that Anglo American will pay a dividend in 2016 when the company said in December it won’t. They are…

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Past performance is not a guide to future returns. The value of investments and the income from them may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. For risks relating to specific products, please refer to the relevant documentation for that product.

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Anglo American PLC is a mining company. The Company has a portfolio of mining operations and undeveloped resources with a focus on diamonds, copper, platinum group metals (PGMs), and bulk commodities. Its segments include De Beers, Platinum Group Metals, Copper, Iron Ore, Nickel and Manganese, Coal, and Corporate and other. De Beers segment is engaged in the diamond business. Within the Platinum Group Metals segment, it has operations principally located in the Bushveld Complex in South Africa. It holds interests in two copper mines: Los Bronces and Collahuasi in Chile and is developing the Quellaveco mine in Peru. Its iron ore operations provide customers with iron content ore through assets in Brazil and South Africa. It has metallurgical coal assets in Australia, and thermal coal assets in Colombia and South Africa. more »

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Glencore plc is an integrated producer and marketer of commodities, such as metals and minerals, energy products, agricultural products and Corporate and other. The Metals and minerals segment is engaged in copper, zinc/lead, nickel, ferroalloys, alumina/aluminum and iron ore production and marketing. It also has interests in industrial assets that include mining, smelting, refining and warehousing operations. Its Energy products segment includes coal mining and oil production operations and investments in strategic handling, storage and freight equipment and facilities. Its Agricultural products segment is supported by controlled and non-controlled storage, handling and processing facilities in various locations, and is focused on grains, oils/oilseeds, cotton and sugar. Its diversified operations consist of over 150 mining and metallurgical, oil production and agricultural assets. more »

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BHP Group PLC, formerly BHP Billiton Plc, is a global resources company. The Company is a producer of various commodities, including iron ore, metallurgical coal, copper and uranium. Its segments include Petroleum, Copper, Iron Ore and Coal. The Petroleum segment is engaged in the exploration, development and production of oil and gas. The Copper segment is engaged in mining of copper, silver, lead, zinc, molybdenum, uranium and gold. The Iron Ore segment is engaged in mining of iron ore. The Coal segment is engaged in mining of metallurgical coal and thermal (energy) coal. Its businesses include Minerals Australia, Minerals Americas, Petroleum and Marketing. It extracts and processes minerals, oil and gas from its production operations located primarily in Australia and the Americas. It manages product distribution through its global logistics chain, including freight and pipeline transportation. more »

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3 Posts on this Thread show/hide all

herbie47 22nd Jan '16 1 of 3

I'm surprised you did not include BP (LON:BP.) in regard to dividends and cuts, that is about £5b.

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jojoran68 24th Jan '16 2 of 3


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Rob Davies 25th Jan '16 3 of 3

Sure, you could include BP, and many others, but in aggregate how much will they amount to?
Maybe 10%, perhaps even 20%, but the market has already fallen by 12% over the last year so it is largely priced in.

Fund Management: VT Smart Dividend UK Fund
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