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Glencore turns a corner

Both of the sprawling commodity group's divisions had a strong outing last year.
February 24, 2017

The re-shaping of Glencore 's (GLEN) asset portfolio - including a new stake in Rosneft and the disposal of half the agriculture business - would have made 2016 a lucrative year for the commodity company's small army of legal and financial advisers. But for the first time since its listing in 2011, it was also a profitable one for buyers of Glencore stock, which is up 149 per cent since the 2015 preliminaries. This time round, and after accounting for a $2.1bn post-tax contribution from discontinued operations, the commodities giant booked $1.4bn in net income, a performance bolstered by big cost savings and China's surprise decision to reflate half-way through 2016.

IC TIP: Buy at 330p

The company is now in a bullish mood as it steps into 2017. "Glencore has never been so well positioned as it is today," chief executive Ivan Glasenberg claimed in his full-year results commentary. Such exuberance finds its roots in two sources: anticipation of higher inflation, interest rates and thus commodity prices, and fiscal economic stimulus programmes which should shore up demand.

Improving demand certainly helped Glencore's second half. The marketing division - which handles the trading, delivery, storage and blending of commodities - booked an adjusted profit before interest and tax of $2.8bn in the period, an increase of 14 per cent. China was the driver, as the country's curb on domestic coal output combined with a jump in stainless steel production to boost the profitability of coal, nickel and ferroalloys sales.

While the marketing division is painted as both a hedge to Glencore's mining activities and a font of unparalleled market insight, the industrial and extractive businesses also had a much better year. This was particularly true of the metals and minerals segment, which contributed $2.2bn in adjusted operating income, although a move to hedge coal production meant the group missed out in the surge in seaborne steam coal prices in the last few months of 2016.

Glencore analysts are guiding for pre-tax profits of $6.1bn and adjusted EPS of 28.9¢ this year, and then $5.6bn and 26.5¢ in 2018.

 

GLENCORE (GLEN)

ORD PRICE:330pMARKET VALUE:£47.5bn
TOUCH:329.5-330p12-MONTH HIGH:334pLOW: 114p
DIVIDEND YIELD:1.7%*PE RATIO:na
NET ASSET VALUE:307¢NET DEBT:35%

Year to 31 DecTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
20122141.1014.015.75
2013233-7.70-73.016.50
20142214.2518.018.00
2015 (restated)147-8.38-39.0nil
2016153-0.55-5.07.00
% change+4---

Ex-div:11 May & 7 Sep

Payment:31 May & 26 Sep

£1 = $1.25

*Dividend for 2016 will be paid in two tranches of 3.5¢ a share.