Glencore Plc

Glencore Plc (GLEN) is among the world’s leading diversified natural resource companies, engaged in the business of production and distribution of minerals and metals, crude oil and oil products, coal and agricultural products. The company currently operates in more than 50 countries and has an employee base of 158,000 including contractors. The company is currently managing over 150 mines across the globe.

Production Update – Q1 FY2019
Glencore’s own sourced copper production decreased by 7% to 320,700 tonnes during Q1 FY19, due to decline in the metal production because of flood in Queensland, Australia, stoppages in Mopani mine and decline in open-cut mining and sale of Punitaqui mine in the second half of FY2018. Production of cobalt rose to 10,900 tonnes reported an increase of 56% as compared to Q1 2018 cobalt production. Zinc production surged to 262,300 tonnes and surged by 8% against the Q1 2018 data. Nickel production witnessed a decline of 10% to 27,100 tonnes in Q1 FY19 primarily because of Canada’s severe weather conditions and ongoing maintenance activities in Koniambo. Ferrochrome production was in line with the production of Q1 2018 at 402,000 tonnes. Coal production rose to 33.2 million tonnes in Q1 FY19. Oil entitlement interest production was in line with Q1 2018 at 1.1 million barrels.

Financial Highlights – FY2018 (US$, million)

(Source: Annual Report, Company Website)

In the financial year ending 31 December 2018, the company’s reported revenue was $219,754 million as compared to $205,476 million for the same period of last year. There was an increase of 6.95 per cent due to an increase in the revenue from geographic regions of the Americas, Europe, Asia and Africa. The company’s Adjusted EBITDA for FY2018 stood at $15,767 million as compared to $14,545 million in FY2017.

The Adjusted EBIT increased by 8 per cent to $9,143 million for the FY2018 as compared to $8,459 million in FY2017. The company’s Income before tax for FY2018 stood at $4,679 million as against $6,921 million for FY2017.

The Income for the year stood at $2,616 million in FY2018 as compared to $5,162 million in the FY2017. The company’s basic earnings per share stood at US$ 0.24 in FY2018 as compared to US$ 0.41 in FY2017. The company’s diluted earnings per share for FY2018 stood at US$ 0.24 as compared to US$ 0.40 in FY2017.

Share Price Performance

Daily Chart as at June-04-19, after the market closed (Source: Thomson Reuters)
  
On 4th June 2019, Glencore Plc shares closed at GBX 261.80, up by 1.97 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 409.80/GBX 249.75.

Valuation Methodology

Conclusion
The company has shown good top-line performance in the current financial year. The company is already on track as it has won all 12 auctions to sell coal to Mexico. The company restarts its Katanga’s processing operations and zinc mining at Lady Loretta (Mount Isa) and post-acquisition, HVO and Hail Creek contributed positively for the company.

Based on the decent growth prospects and supported by the valuation as done above, we have given a “BUY” recommendation at the closing price of GBX 261.80 (as on 4th June 2019) with single-digit upside potential based on 4.70x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 

Petrofac Ltd

Petrofac Limited (PFC) is an international company into oilfield services’ providing integrated services to the manufacture and processing companies. The group builds and designs oil and gas facilities; manages, maintains and operates facilities on behalf of its consumer and trains personnel. The company also co-invests and develops in infrastructure and upstream projects.

Financial Highlights – FY2018 (US$, million)

(Source: Annual Report, Company Website)

For the FY ending 31st December 2018, the company reported revenue of $5,829 million, a decrease of 8.85 per cent over FY2017 of $6,395 million. EBITDA dipped by 10 per cent to $671 million as compared with the financial year 2017 data of $748 million. The company’s operating profit stood at $159 million in FY2018 against $104 million in FY2017.

The reported profit before tax for FY2018 increased by $62 million to $107 million from $45 million in FY2017. The net profit of the company was $61 million in FY2018 as compared to a net loss of $27 million in FY2017.

The group’s reported basic earnings per share were 18.9 cents in FY2018 as compared to a loss per share of 8.5 cents in FY2017. The dividend per share was 38.0 cents which remained flat for FY2018 as compared to the last year.

Share Price Performance

Daily Chart as at June-04-19, after the market closed (Source: Thomson Reuters)  

On 4th June 2019, Petrofac Ltd shares closed at GBX 419.00, up by 1.33 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 679.00/GBX 376.40.

Valuation Methodology

Conclusion
The company carries out the development, engineering, construction, facilities operation & maintenance, and provides training services for the oil and gas industry. Diversified operations, strong domain expertise in Engineering & Construction and order backlog strengthened its operations. New contracts, increasing demand for oil and petroleum products and upstream investment forecast for 2019 could provide new growth opportunities to the company.

Based on the above factors and supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 419 (as on 4^th June 2019) with single-digit upside potential based on 4.90x NTM Price/Cash flow multiple (approx.) on FY19E cash flow per share (approx.).
 
*All forecasted figures and peer have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.79019 GBP.

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