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Glencore – HOLD

Renaissance Capital

6 February 2019

Metals & Mining

Figure 84: Glencore, $mn (unless otherwise noted)
Glencore			GLEN.L
Market capitalisation, $mn:			55,844
Enterprise value, $mn:			94,364
Dec-YE		2016	2017	2018E	2019E	2020E
Income statement
Revenue		156,466	208,768	225,864	222,441	225,133
Adjusted EBITDA		10,268	14,762	16,465	14,813	17,458
Adjusted EBIT		3,930	8,552	10,009	7,932	10,640
Net interest		-1,549	-1,525	-1,495	-1,685	-1,512
Taxation		-886	-2,276	-2,396	-1,460	-2,012
Minority interest in profit		443	615	36	-256	-361
Attributable profit		1,510	5,777	5,800	4,531	6,755
Net income pre significant items		1,992	5,508	6,317	4,531	6,755
EPS (pre significant items), USc		14.0	38.0	45.0	33.0	49.0
Thomson Reuters consensus EPS, USc				41.7	38.9	49.2
DPS declared, USc		7.0	20.0	30.0	24.7	46.1
Adjusted EBIT		2,182	4,496	4,411	2,706	6,636
Metals and minerals
EBIT margin		9%	15%	15%	9%	20%
Energy products		-842	1,424	3,247	2,901	1,512
EBIT margin		-12%	14%	26%	22%	12%
Agricultural products		104	0	0	0	0
EBIT margin		3%	-	-	-	-
Corporate and other		-329	-380	-444	-443	-489
Industrial EBIT		1,115	5,540	7,214	5,164	7,659
EBIT margin		3.2%	14.0%	16.9%	12.2%	16.5%
Metals and minerals – marketing		1,562	2,005	2,164	1,850	2,003
Energy products – marketing		909	990	738	931	870
Other		344	17	-108	-13	108
Marketing EBIT		2,815	3,012	2,795	2,768	2,981
EBIT margin		2.0%	1.7%	1.5%	1.5%	1.7%
Adjusted EBIT - Group production		3,930	8,552	10,009	7,932	10,640
Income statement ratios
EBITDA margin		6.6%	7.1%	7.3%	6.7%	7.8%
EBIT margin		2.5%	4.1%	4.4%	3.6%	4.7%
EPS growth		38%	171%	18%	-27%	48%
Dividend payout ratio		50%	53%	68%	75%	94%
Input assumptions
ZAR/$		14.70	13.31	13.24	14.31	14.14
$/AUD		0.74	0.77	0.75	0.72	0.78
Copper, USc/lb		221	280	296	272	289
Nickel, USc/lb		435	472	596	523	648
Thermal coal, $/t		64	85	98	93	86
Required breakeven price
Copper, $/t		3,590	4,003	4,247	5,075	3,569
Zinc, $/t		872	953	1,364	1,288	1,116
Nickel, $/t		7,616	6,881	8,920	8,992	9,409
Coking coal, $/t		130	101	113	96	101
Thermal coal, $/t		46	54	59	59	64
Sales volumes
Copper, kt		1,426	1,310	1,454	1,556	1,542
Zinc, kt		1,094	1,090	1,068	1,200	1,325
Nickel, kt		115	109	124	136	145
Coal, mnt		125	121	129	146	147
Attributable Cu eq volumes, kt		4,880	4,635	5,029	5,624	5,775
Volume growth		-3.4%	-5.0%	8.5%	11.8%	2.7%
Contribution to FY18E adjusted EBITDA
Marketing:	Marketing:	Marketing: Agri
	Energy
Metals		1%
	5%				Copper
13%
					30%
Oil
1%
Coking coal
4%
Thermal coal					Zinc
27%				Nickel	14%
				5%

* Net funding less readily marketable inventories (RMI)

	Target price, ZAR:					55
	Share price, ZAR:					53
	Potential 12-month return:					10.3%
Dec-YE	2016	2017		2018E	2019E	2020E
Balance sheet
Net operating assets	77,305	81,031		81,968	81,187	79,835
Investments	-905	1,322		1,630	1,687	1,745
Equity	44,243	49,755		47,000	47,382	50,719
Minority interest	-462	-300		396	434	488
Net funding <$36bn	32,619	32,898		36,203	35,058	30,372
Net debt ($10-16bn)*	15,526	10,673		16,078	13,926	10,867
Balance sheet ratios
Gearing (Net debt : (Net debt + equity))	42.4%	39.8%		43.5%	42.5%	37.5%
Net debt/EBITDA (<2x)	1.8x	0.9x		1.1x	1.1x	0.7x
RoCE	4.4%	9.4%		10.6%	8.4%	11.4%
RoIC (after tax)	3.1%	10.3%		8.7%	6.7%	9.7%
RoE	4.7%	11.7%		13.1%	9.6%	13.8%
Cash flow statement
Operating cash flow	7,527	11,921		14,133	11,608	14,279
Capex less disposals	-3,215	-3,623		-7,473	-4,727	-4,633
Other cash flows	5,040	-3,987		-3,221	0	0
FCF	9,352	4,311		3,439	6,882	9,646
Equity shareholders' cash	8,626	725		1,567	5,293	8,103
Dividends and share buy-backs	0	-1,004		-4,872	-4,148	-3,417
Surplus (deficit) cash	8,626	-279		-3,305	1,145	4,686
Cash flow ratios
Working capital days	24	21		21	21	21
Capex/EBITDA	36.4%	29.4%		53.1%	38.1%	31.0%
FCF yield	14.3%	4.6%		3.4%	7.6%	11.2%
Cash conversion	4.3x	0.1x		0.2x	1.2x	1.2x
Equity shareholders' yield	26.0%	1.2%		2.5%	9.6%	14.6%
Valuation					$mn
Calculation of target price						ZAR/sh
Industrial
Metals and minerals					46,945	48.2
Energy products					20,355	20.9
Marketing
Metals & minerals					22,682	23.3
Energy					7,316	7.5
Agricultural					1,181	1.2
Corporate and other					-14,662	-15.0
Total enterprise value					83,817	86.0
Net debt, financial instruments					-30,511	-31.3
Equity value as at 4/2/2019					53,306	54.7
Rounded to						55.0
Share price on 1/2/2019						53.1
Expected share price return						3.7%
Plus: expected dividend yield						6.7%
Total implied one-year return						10.3%
Share price range, ZAR:
12-month high on 15/6/2018	72	12-month low on 6/12/2018				48
Price move since high	-26.4% Price move since low					10.1%
Calculation of discount rate
WACC	9.8%	Cost of debt				4.5%
Risk-free rate	4.0%	Tax rate				20%
Equity risk premium	6.5% After-tax cost of debt					3.6%
Beta	1.30	Debt weighting				30%
Cost of equity	12.5%	Terminal growth rate				2.0%
Valuation ratios
Dec-YE	2016	2017		2018E	2019E	2020E
P/E multiple	16.7x	11.2x		10.2x	12.1x	8.2x
Dividend yield	3.0%	4.7%		6.5%	6.2%	11.5%
EV/EBITDA	6.4x	6.3x		6.1x	6.1x	4.9x
P/B	0.8x	1.2x		1.4x	1.2x	1.1x
NAV per share, $	3.1	3.5		3.4	3.4	3.7
NAV per share, ZAR	46	46		45	49	52

Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates

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