Why the Anglo American share price shot up 40% in April

Jon Smith reviews the best-performing FTSE 100 stock from the past month and explains why the Anglo American share price soared.

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For a FTSE 100 stock to jump 40% in a single month, something pretty significant must have happened. So it’s no surprise that the Anglo American (LSE:AAL) share price spike caught a lot of investors’ attention. Here’s what happened with the best performing FTSE 100 stock in April.

Big news on the wire

The main surge came in late April when news broke that BHP Group had offered a £31.1bn all-share takeover proposal for the firm.

There are a lot of synergies between the two companies, most notably in the copper mining space. Further, the Anglo American share price likely looked cheap to BHP Group, given the falling share price over the past year.

Usually with takeover bids, the share price will quickly jump to the level implied by the offer price. In this proposal, existing shareholders would receive a total value of £25.08 per Anglo American share. Not only this, but they would also receive extra value as part of the deal. This means that owning the stock now would be worth well above £25.08.

Naturally, the share price jumped from around £22 before the announcement to just under £27. It’s hard to pin an exact fair value on the stock based on the offer. Yet clearly, investors believe it to be around this mark.

Trying to find the value

Despite the jump, we received confirmation recently that the offer has been rejected. BHP Group has a few weeks to make a renewed offer it the management team wants to.

Yet, the stock has (so far) held on to the gains from the past couple of weeks. I believe part of this is down to the fact that the stock was undervalued. The offer woke up some investors to this fact. Even though the 40% jump likely makes it now slightly overvalued in the short term, I wouldn’t be surprised to see this fall a little but then consolidate at a higher price than before.

After all, I expect results for this year to improve, thanks to rising commodity prices. For example, the copper price is up 20% this year alone. Given that in the 2023 company results, copper and nickel production was up by 23%, I think it’s well positioned to profit from this move.

Having to pass on this one

The major risk I feels is that I don’t see significant potential for the stock to rally from the current price. It’s true that I expect the business to perform well. But the jump post takeover news means that there’s little value to be had right now. After the jump, the stock’s up 12% over the past year.

Further, if another counter offer comes in and is accepted, there would be little point me buying as a long-term investor.

With that in mind, it means that even though I like the firm, I can’t see any rational reason for investing right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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