ii view: Glencore reports record profit

Boosting shareholder returns and booking a provision for various investigations. We assess prospects. 

Full-year results to 31 December

• Revenue up 43% to $203.7 billion
• Adjusted profit (EBITDA) up 84% to $21.32
• Net debt down 62% to $6.04 billion
• Dividend of 26 US cents per share
• New share buyback programme of $550 million

Chief executive Gary Nagle said: 

"In spite of the ongoing challenges of Covid-19, 2021 was an extraordinary year for Glencore, reflecting rising demand for our metals and energy products, record adjusted EBITDA and the transition to new leadership.

"Looking forward, we remain focused on our strategy to enable and deliver decarbonisation and meet the increasing demand for everyday metals, while responsibly meeting the energy needs of today. We look to the future confident that we have the right pathway to succeed in a net-zero economy and create sustainable long-term value for all stakeholders, while operating in a responsible manner across all aspects of our business"

ii round-up:

Miner and commodities trader Glencore (LSE:GLEN) today reported plans to return $4 billion to shareholders as rising commodity prices helped full-year adjusted profit to a new record of $21.32 billion. 

A dividend totalling $3.4 billion or 26 US cents per share is to be paid along with a new share buyback programme of $550 million. Glencore, whose mined commodities include both cobalt and nickel used in battery production, also announced a provision of $1.5 billion to cover the cost of investigations in the US, UK and Brazil.

Glencore shares rose by more than 3% in UK trading having gained by around 50% over the last year. Shares for rival diversified miner Rio Tinto (LSE:RIO) are down by around 9% over that time, while shares for copper miner Antofagasta (LSE:ANTO) have fallen by 12%. 

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Total Glencore revenues climbed 43% to $203.7 billion, pushing adjusted profit (EBITDA) up 84%. Within that, multi-year or record high prices for many of its commodities provided for a more than doubling in mining-related profit to $17.1 billion. Profit for its commodity trading or marketing business rose 11% to $3.7 billion. Group net debt fell by almost two-thirds to $6.04 billion. 

Broker Morgan Stanley noted that both the adjusted profit outcome of $21.32 billion and the return of $4 billion to shareholders were in line with City forecasts. Although its investigation provision of $1.5 billion was better than it had assumed. 

The 2021 dividend of 26 US cents per share compares to 2020’s total of 6 cents per share and no payment at all in 2019. The new $550 million share buyback programme equates to a return of 4 cents per share. 

ii view:

Glencore has operations in over 35 countries in both established and emerging regions for natural resources. It is both a producer and marketer of more than 60 different commodities. Its customers are industrial consumers, such as those in the automotive, steel, power generation, battery manufacturing and oil sectors. Its trading or marketing business adds additional diversity not seen at rivals. The marketing business can generate profits to help offset commodity price falls for its more traditional mining business. 

In terms of reasons to be cautious, a provision of $1.5 billion may not fully provide for required settlements. Another risk is that factors outside of management’s control, such as the weather, can impact performance, while exposure to climate change responsible fuels such as coal offers some caution. Pandemic and economic outlook uncertainty also cannot be ignored.  

However, both diversity of commodities mined and in operations given its marketing business, offer strengths. A provision for investigations does provide some reassurance while shareholder returns have been boosted, leaving it sat on a yield of around 4%, not bad in an era of ultra-low interest rates. In all, and with the consensus analyst estimate of fair value per share standing at 459p per share, investors may wish to stay long-term patient.  

Positives: 

• Diversity of commodities and operations
• Exposure to decarbonisation-related commodities

Negatives:

• Loss of highly experienced chief executive Ivan Glasenberg
• Uncertain Covid-19 clouded outlook

The average rating of stock market analysts:

Buy