ii view: exposure to battery chemicals helps power Glencore

Net debt down and a $650 million share buyback scheme. Buy, sell or hold?

First-half results to 30 June 2021

• Revenue up 32% to $93.8 billion (£67.5 billion)
• Underlying or adjusted earnings up 79% to $8.7 billion (£6.25 billion)
• Dividend of $0.04 per share
• Share buyback of $650 million (£468 million)
• Net debt down a third to $10.62 billion (£7.65 billion)

Chief executive Gary Nagle said: 

"I am pleased to report strong progress and group performance over the first half of 2021. Our Industrial assets recorded a much improved safety performance, our strengthened climate commitments are amongst the most ambitious in the sector, group half-year Adjusted EBITDA of $8.7 billion was a record, Net debt targets were achieved early and shareholder returns have been topped up."

ii round-up:

Glencore (LSE:GLEN) has around 150 mining and oil production assets in over 35 countries. Group core commodities include copper, zinc, nickel, cobalt and coal.

It is both a producer and marketer of more than 60 different commodities, and a global trader of oil and agricultural products along with providing financing, logistics and other services to producers and consumers of commodities.

For a round-up of these latest results, please click here. 

ii view:

Founded in the 1970’s as a trading company, today Glencore employs over 130,000 people. Its customers are industrial consumers, such as those in the automotive, steel, power generation, battery manufacturing and oil sectors. 

Just under a third of its earnings are generated in frontier regions such as the Democratic Republic of the Congo, Kazakhstan, and Colombia. Its trading or marketing business adds additional diversity not seen at rivals. The marketing business can generate profits to help offset asset price falls for its more traditional mining business. 

For investors, exposure to climate change responsible fuels such as coal offers some caution. As do previous investigations regarding group business practices by both US and Swiss authorities. As with rivals, events outside of management’s control such as the weather can impact performance, while the tenure of a new chief executive raises some uncertainty. 

On the upside, exposure to a range of commodities offers diversity not seen at some other miners. Strong cashflows from pandemic recovering commodity prices has helped net debt fall, with carefully managed capital expenditure also helping it to increase shareholder returns. Glencore shares now sit on an estimated forward yield of around 4%. In all, and given both exposure to late economic cycle commodities and an estimated consensus analyst fair value price of 377p per share, we believe investors may wish to continue to accumulating long-term holdings.

Positives: 

• Diversity of commodities and operations
• Focus on shareholder returns

Negatives:

• ESG concerns regarding coal production 
• Loss of highly experienced chief executive Ivan Glasenberg

The average rating of stock market analysts:

‘Buy’