Glencore Plc

Glencore Plc is a Switzerland based diversified natural resource company, engaged in the business of production and distribution of minerals and metals, crude oil and oil products, coal and agricultural products. As per the company website it has employed around 0.15 million employees. Its shares are listed on the London Stock Exchange, and the company has issued unsponsored American Depository Receipts in the United States. The outstanding market capitalisation of the company stood at £43.17 bn (as on March-25-2019) and dividend yield of the company stood at 4.9%. 

Its areas of operations are categorised into the segments like Energy Products, Metal & Mining, and Agriculture products and company has a geographical presence in Asia, Europe, The Americas, Oceania and Africa. During FY18 group's 43.07% of the revenue came from Asia, 34.58% came from Europe, 16.81% came from America, 3.16% came from Oceania, and 2.38% came from Africa. 

                            

(Source: TR)

Key Developments

On 14^th March 2019, Glencore International AG and Yamana Gold Inc have announced the signing of an integrated agreement according to which the Agua Rica project would be developed and operated by using current infrastructure facilities of Minera Alumbrera Limited in the Catamarca provenance of Argentina. On February 20, 2019, Company announced its full-year financial results for the year ended 31-December-2018, in which Net income attributable to the equity shareholders plunged by 41% to US$3,408 million. On February 01, 2019 the company reported its full-year production report for the period ended on 31-Mar-2018.

Full-Year 2018 Production Overview

Glencore’s own sourced copper production increased by 11% to 1,453,700 tonnes during FY18, on account of re-start of copper production at Katanga in late 2017 and to a certain extent countervailed by the completion of open-pit mining at Alumbrera. Production of cobalt rose to 42,200 tonnes reported an increase of 54% as compared to 2017 cobalt production. Nickel production witnessed an increase of 13% to 123,800 tonnes in FY18 primarily because of Koniambo operating two production lines throughout the year. Ferrochrome production was in line with the production of 2017 at 1,580,000 tonnes. Coal production rose 7% to 129.4 million in FY18. Oil entitlement interest production declined 8% below the production in 2017 at 4.6 million barrels on account of natural decline in Eqatorial Guinea field.

Average base metal prices realised in 2018.
Copper- $5,950/tonne, Zinc- $2,836/tonne, Nickel (excluding Koniambo)- $13,007/tonne and Nickel (including Koniambo)- $12,875/tonne respectively.

Financial Performance – FY18
During FY18 company’s adjusted EBITDA stood at US$15,767 million witnessed an increase of 8% from FY17 adjusted EBITDA of US$14,545 million, supported by ramp-ups, acquisition and realised commodity prices during the year. HVO and Hail Creek impacted post-acquisition positively. Realised commodities prices during H1 FY18 was stronger than the realised commodities prices in H2 FY18, and coal prices remained firm throughout in 2018.

Net Income attributable to the shareholders was stood at US$3,408 million, witnessed a plunge of 41% from FY17, primarily on account of non-cash impairment at Mutanda and Mopani, totalling US$1.4 billion compared to US$1.3 billion of accounting profit on disposal of investment in the base period.

Earnings per share stood at 0.24 cents, declined by 41% against the FY17 revenue of $0.41cents.

Cash generated from core operation witnessed an increase of 11% to $13,210, and capital expenditure rose to $4,899 million from $3,789 million in FY17, increased by 29% in FY18. Net Debt for the period stood at $14, 710 million, witnessed an increase of 44% from FY17. Net Debt inline in the range of $10-16 billion.

During the FY18, Glencore’s gross margin and EBITDA margin improved as compared to the FY17 margins, for FY18 Gross Margin stood at 4.2%, increased 40bps against FY17 and EBITDA margin stood at 6.4%, improved 60bps against FY17. Return on equity (ROE) was stood at 7.1% relatively lower than the Industry median of 11.8%.

Targeted Mergers & Acquisition during FY18
The company acquired 49% interest in the Hunter Valley Operations premium thermal coal and 82% interest in the Hail Creek coking/thermal coal and material benefit going to flow in FY19. The company also acquired a fuel distribution network in Brazil.

During the FY18, the company announced a share buyback programme which was funded by cash generation, RMI maintained below $20 billion.

Stock Performance – 1 Year
Shares of Glencore Plc were quoting 1.95 points or 0.63% lower at GBX 305.55 in today’s session (as on March 14, 2019, at 0144PM GMT). During the last one-year shares have reached a 52w high of GBX 409.80 and a 52w low of GBX 268.35 and at the current market price shares were trading 25.4% below its 52w high price and 13.8% above its 52w low price. Company’s gross dividend yield of 4.9% was relatively higher within the mining and metal sector. In last one-year stock has delivered a return of negative 18.42% and on a year-to-date basis, the stock is up by 5.47% respectively. At the daily average volume standpoint, stocks 5day average daily volume was 2.62% higher against the 30day average daily volume, and at the current price, shares were trading 1.47% and 3.67% higher against its 30day and 60day simple moving average price and 2.08% below its 200day simple moving average price respectively.

Valuation Methodology 

 
*Note: All forecasted figures have been taken from Thomson Reuters.

Growth Prospects
Increased production volume in 2019 coupled with high realised commodity prices in the international market will benefit company favourably in 2019, as commodity market is witnessing an upside momentum in early months of 2019, this is expected to make a positive impact on the top-line and bottom-line of Glencore Plc.

Conclusion
From the above valuation done, we have given a BUY recommendation at the closing price of GBX 307.30 (as on Mar 13, 2019) with single digit upside potential based on 5.8x NTM Peers Median Price/Cash Flow on FY19E Cash Flow Per Share.
 
*The buy recommendation is valid for the current price as covered in the report (as on Mar-14-19).

Note- GBp or GBX are interchangeably used for Pence Sterling.
 

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