ii view: Glencore positive about the rest of 2023

First-half results to 30 June 

• Revenue down 20% to $107.4 billion
• Adjusted profit (EBITDA) down 50% to $9.4 billion
• Total 2023 announced shareholder returns of $9.3 billion including dividends and share buybacks
• Net debt of $1.54 billion, up from $75 million in late December

Chief executive Gary Nagle said:

“Following 2022, a year characterised by extreme global geopolitical and economic turbulence, generating extraordinary energy market dislocation, volatility, supply disruption and record prices for many coal and gas benchmarks, 2023 has, for the most part, seen energy trade flows rebalance and normalise, with coal, oil and gas prices materially declining over H1 2023.

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“While lower energy prices have recently tempered some of the inflationary pressures in key Western markets, the restart of previously shuttered energy-intensive industries, including some steel, zinc and aluminium production, has been limited by weak end-user markets, particularly in Europe.

“Moderating inflation and supportive government policy in China across key end-user sectors, are bringing a more positive macroeconomic backdrop in H2 2023. Low metal inventories, higher production costs, geopolitical uncertainty and energy transition demand are all supportive of above-average real-term prices through the cycle and into the longer term.”

ii round-up:

Glencore (LSE:GLEN) is a major miner of commodities via its Industrial Assets division. Coal and copper are its two biggest profit generators, followed by zinc, nickel, cobalt and ferroalloys. 

The FTSE 100 company is also a trader of more than 60 different commodities through its Marketing division, including oil and agricultural products.  

For a round-up of these latest results announced on 8 August, please click here.

ii view:

Started in 1974, its merger with miner Xstrata in 2013 promoted Glencore to one of the world's largest commodity producers. Today it employs around 140,000 people in more than 35 countries. Competing against rivals such as Rio Tinto Registered Shares (LSE:RIO), BHP Group Ltd (LSE:BHP) and Anglo American (LSE:AAL), its customers include industrial consumers, such as those in the automotive, steel, power generation, battery manufacturing and oil sectors. 

In April, it proposed a merger/demerger plan with fellow Canadian metals and coal miner Teck Resources (NYSE:TECK). The plan would see the pair combine and then simultaneously split their coal and metals operations into two standalone companies. Glencore more recently proposed a purchase of Teck’s steelmaking coal business which, if successfully acquired, it would eventually demerge along with its own existing coal business. Teck Resources has so far rejected the proposals. 

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For investors, the uncertain global economic outlook, particularly for big commodity buyer China, remains an overhang. Production of fossil fuels given their role in climate change may also deter some investors. Previous corruption allegations and legal settlements potentially add to ethical concerns, while exposure to political instability in countries of operation such as Colombia, the Democratic Republic of the Congo and Kazakhstan also warrant consideration. 

On the upside, continued deal hopes with Teck Resources could eventually see Glencore's coal operations separated out, leaving investors with a clearer choice as to whether to invest in coal or not. Diversity of both commodities mined and operations provided by its marketing business generate strengths not seen at rivals. China is implementing measures to try and boost its economy, while exposure to energy transition metals such as cobalt and zinc used in batteries is not to be forgotten.   

In all, and despite downside risks, a forecast dividend yield of over 7% and consensus analyst fair value estimate above 550p per share, should mean existing fans of the stock stay put.

Positives: 

• Diversity of commodities and operations
• Focus on shareholder returns

Negatives:

• Uncertain economic outlook
• The weather can hinder performance

The average rating of stock market analysts:

Buy