Glencore Plc– Well Diversified with metallurgical sites and Oil Production Assets

Glencore Plc (LON: GLEN) is an internationally diversified natural resource company, which is into production and marketing of commodities. The company operates in the business of minerals, metals such as copper and zinc, crude oil and oil products.

Production Update for Q1 FY2020 with no Material Impact of Covid-19 Pandemic
On 30^th April 2020, Glencore released anupdate on the production for the first quarter of the financial year 2020.The company’s operations are not materially impacted by the disruptions faced during the period. The production of own sourced copper production stood 9 per cent lower at 27,400 tonnes versus Q1 FY2019. The group do not report any production from Mopani and Mutanda for the period. Driven by higher grades from Canada and restart of operations in Iscaycruz mine and Antamina joint venture in the Q3 FY2019, the production of own sourced zinc surged by 13 per cent to 33,300 tonnes in Q1 FY2020 versus Q1 FY2019. The production of own sourced nickel surged by 4 per cent to 1,100 tonnes in Q1 FY2020, while the production of ferrochrome declined by 3 per cent 14,000 tonnes for the period. Reflecting mining sequencing in the coking portfolio in Australia and operating issues in South Africa, the Coal production declined by 4 per cent to 1.3 million tonnes in Q1 FY2020. The production of entitlement interest oil surged by 58 per cent to 0.7 million barrels in Q1 FY2020 versus Q1 FY2019. The group is focused on ensuring the health of its employees, their families and the communities. Glencore is working closely with health agencies and governments to make sure that health care solutions are available in remote areas as well.

Share Price Performance

Daily Chart as of May 1^st, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Glencore Plc shares were trading at GBX 139.88 at the time of writing before the market close (at 2:59 PM GMT+1) on 1^st May 2020 and down by 4.91% versus the previous day closing price. Stock's 52 weeks High is GBX 307.75 and Low is GBX 109.76.

Valuation Methodology
 

Growth Catalysts
The demand for copper is consistently growing, primarily driven by urbanisation (includes demand for power generation and transmission), economic development (includes development related to infrastructure, transport and construction), and the newly rising demand for electric vehicles and renewable energy. 

Conclusion
The production in the first quarter of the financial year 2020 is not materially impacted by the disruptions faced. The group showed higher grades from Canada and restart of operations in Iscaycruz mine and Antamina joint venture in the Q3 FY2019, which increased by Zinc production for the period. In the fiscal year 2019, the company’s operations, as well as financial performance, declined and the production of almost all the commodities reduced due to tough economic conditions. However, the company is well-positioned, and the remaining business performance remained robust. The company expected that the commodity market fundamentals would step in the company’s favour and that the varied commodity portfolio would perform a vital role in the transition to a low-carbon economy with international progress. All through continued constructive collaboration, the company stay concentrated on generating sustainable long-term value for all the shareholders. The company is focused on realising the potential of its ramp-up assets and improving its operational efficiencies.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 136.82 (as on 1^st May 2020, before the market close at 1:46 PM GMT+1), with lower double-digit upside potential based 23.60x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Hunting Plc – Achieving Momentum Using New Technologies

Hunting Plc (LON: HTG) provides services to upstream oil and gas companies. The company manufactures premium, tools and components required to extract hydrocarbons across the oil and gas well.

The group will announce its trading update on 25^th June 2020.

Recent News
On 30^th April 2020,Hunting announced that it has made payments to governments as per DTR 4.3A for the financial year 2019 and stood in accordance with Governments Regulations 2015 (2015/1928).

On 15^th April 2020,Hunting announced that its Director and Finance Director, Peter Rose, has decided to step down from his position and will be succeeded by Bruce Ferguson.

Q1 Trading Update for FY2020 – Several Measures Taken for COVID-19 Outbreak and Strong Balance Sheet, with Good Liquidity

On 15^th April 2020, Hunting released an update on the trading performance in the first quarter of the financial year 2020. At present, the industry in which the company operates is facing supply shock and unprecedented demand due to the outbreak of Covid-19 and collapse in oil prices. To tackle the unprecedented crisis, the management has taken necessary steps to reduce costs, preserve cash and paused all capital expenditure with recruitment freeze. The trading in the first quarter remained in line with the expectations. The businesses linked with US onshore completions witnessed a decline in demand due to oil price collapse. At present, the board is not able to quantify the impact of the market backdrop and hence withdrawn its guidance for FY2020. The group’s balance sheet is well-positioned with adequate liquidity, including net cash position of USD 22.3 million as of 31^st March 2020, and undrawn borrowing facilities of USD 160 million committed until 2022.

Share Price Performance

Daily Chart as of May 1^st, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Hunting Plc shares were trading at GBX 169.488 at the time of writing before the market close (at 3:10 PM GMT+1) on 1^st May 2020 and down by 7.08% versus the previous day closing price. Stock's 52 weeks High is GBX 588.50 and Low is GBX 148.90.
 
Valuation Methodology


Growth Catalysts
The group introduced new technologies and techniques to upgrade its portfolio of services and products to meet the requirements of faster pace gas and oil industry. The company is well-positioned to take benefits from growth trends across the energy and industrial markets. 

Conclusion
For 2020, the outlook stays uncertain. Despite this uncertainty, Hunting stays in a good position to deliver shareholder value with its robust financial footing and balanced portfolio of products. The trading for the first quarter remained in line with the management’s expectations, and the group has taken multiple steps to tackle the uncertain period. The group’s global operations are impacted due to outbreak of Covid-19 and collapse of oil prices, while the operations in the Chinese region are coming back to full capacity. The company acquired Enpro (Enpro Subsea Limited) and RTI (RTI Energy Systems Inc.) for cash shows the ability to expand operations quickly.

Based on the decent prospects and supported by valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 168.90 (as on 1^st May 2020, before the market close at 3:31 PM GMT+1), with lower double-digit upside potential based on 21.30x NTM Price/Earnings (approx.) on FY20E Earnings per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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