- •Contents
- •Revisions to our forecasts, TPs and ratings
- •Investment stance
- •Capital cycle favours rising returns
- •Comfortable balance sheets and supportive dividend potential
- •Value relative to other stocks
- •Yield potential through the cycle
- •Mid-cycle cash generation offers supportive yields
- •Where to hide if you are bearish
- •What to buy if you are bullish
- •Limited lives weighing down IRR
- •Yields should compensate for limited lives
- •Positive earnings momentum continues to support share prices
- •Commodity price revisions
- •Commodity section
- •Commodity section
- •Preference for base metals over steelmaking materials
- •Earnings revisions
- •Risks and catalysts
- •Peer comp charts
- •Commodity price and exchange rate forecasts
- •Important publications
- •African Rainbow Minerals
- •Alrosa
- •Anglo American
- •Assore
- •Exxaro
- •Glencore
- •Kumba Iron ore
- •NorNickel
- •Rio Tinto
- •Rusal
- •Vale
- •Gold Fields
- •Harmony
- •Polymetal
- •Anglo American Platinum
- •Lonmin
- •Northam
- •Royal Bafokeng Platinum
- •Sasol
- •Disclosures appendix
vk.com/id446425943
Glencore – HOLD
Renaissance Capital
1 April 2019
Metals & Mining
Figure 117: Glencore, $mn (unless otherwise noted)
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Glencore |
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GLEN.L |
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Target price, ZAR: |
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65 |
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Market capitalisation, $mn: |
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54,791 |
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Share price, ZAR: |
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59 |
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Enterprise value, $mn: |
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92,679 |
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Potential 12-month return: |
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16.2% |
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Dec-YE |
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2017 |
2018 |
2019E |
2020E |
2021E |
Dec-YE |
2017 |
2018 |
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2019E |
2020E |
2021E |
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Income statement |
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Balance sheet |
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Revenue |
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208,768 |
222,397 |
230,457 |
232,754 |
244,031 |
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Net operating assets |
81,031 |
76,503 |
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76,073 |
76,572 |
76,062 |
Adjusted EBITDA |
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14,762 |
15,767 |
15,208 |
17,419 |
17,840 |
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Investments |
1,322 |
1,018 |
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1,089 |
1,161 |
1,235 |
Adjusted EBIT |
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8,552 |
9,143 |
8,757 |
11,001 |
11,345 |
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Equity |
49,755 |
45,738 |
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46,104 |
49,519 |
50,362 |
Net interest |
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-1,525 |
-1,507 |
-1,537 |
-1,496 |
-1,356 |
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Minority interest |
-300 |
-355 |
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-312 |
-257 |
-200 |
Taxation |
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-2,276 |
-2,599 |
-1,804 |
-2,277 |
-2,375 |
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Net funding <$36bn |
32,898 |
32,138 |
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31,371 |
28,472 |
27,136 |
Minority interest in profit |
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615 |
792 |
-284 |
-370 |
-376 |
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Net debt ($10-16bn)* |
10,673 |
14,710 |
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13,431 |
9,823 |
7,502 |
Attributable profit |
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5,777 |
3,408 |
5,132 |
6,858 |
7,238 |
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Net income pre significant items |
5,508 |
5,765 |
5,132 |
6,858 |
7,238 |
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Balance sheet ratios |
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EPS (pre significant items), USc |
38.0 |
41.0 |
38.0 |
52.0 |
54.0 |
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Gearing (Net debt : (Net debt + equity)) |
39.8% |
41.3% |
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40.5% |
36.5% |
35.0% |
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Net debt/EBITDA (<2x) |
0.9x |
1.1x |
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1.1x |
0.7x |
0.5x |
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Thomson Reuters consensus EPS, USc |
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36.6 |
39.9 |
41.6 |
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RoCE |
9.4% |
10.0% |
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9.9% |
12.4% |
12.8% |
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DPS declared, USc |
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20.0 |
20.0 |
25.8 |
33.1 |
29.7 |
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RoIC (after tax) |
10.3% |
7.2% |
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7.9% |
10.4% |
10.4% |
Adjusted EBIT |
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RoE |
11.7% |
12.1% |
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11.2% |
14.3% |
14.5% |
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4,496 |
4,053 |
3,627 |
6,599 |
7,003 |
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Cash flow statement |
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Metals and minerals |
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EBIT margin |
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15% |
13% |
12% |
19% |
19% |
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Operating cash flow |
11,921 |
16,080 |
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11,606 |
12,363 |
13,138 |
Energy products |
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1,424 |
3,209 |
2,557 |
1,697 |
1,385 |
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Capex less disposals |
-3,623 |
-4,777 |
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-4,564 |
-4,469 |
-3,961 |
EBIT margin |
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14% |
25% |
20% |
13% |
11% |
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Other cash flows |
-3,987 |
-4,435 |
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0 |
0 |
0 |
Agricultural products |
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0 |
0 |
0 |
0 |
0 |
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FCF |
4,311 |
6,868 |
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7,042 |
7,894 |
9,176 |
EBIT margin |
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- |
- |
- |
- |
- |
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Equity shareholders' cash |
725 |
5,638 |
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5,534 |
6,343 |
7,731 |
Corporate and other |
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-380 |
-533 |
-459 |
-502 |
-520 |
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Dividends and share buy-backs |
-1,004 |
-4,878 |
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-4,766 |
-3,443 |
-6,395 |
Industrial EBIT |
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5,540 |
6,729 |
5,726 |
7,794 |
7,868 |
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Surplus (deficit) cash |
-279 |
760 |
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767 |
2,899 |
1,336 |
EBIT margin |
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14.0% |
15.3% |
13.1% |
16.3% |
15.9% |
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Cash flow ratios |
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Metals and minerals – marketing |
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2,005 |
1,742 |
2,120 |
2,226 |
2,344 |
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Energy products – marketing |
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990 |
742 |
929 |
876 |
926 |
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Working capital days |
21 |
19 |
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16 |
17 |
18 |
Other |
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17 |
-70 |
-17 |
105 |
206 |
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Capex/EBITDA |
29.4% |
35.2% |
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35.9% |
30.1% |
26.3% |
Marketing EBIT |
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3,012 |
2,414 |
3,032 |
3,207 |
3,477 |
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FCF yield |
4.6% |
7.2% |
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8.2% |
9.6% |
11.3% |
EBIT margin |
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1.7% |
1.4% |
1.6% |
1.7% |
1.8% |
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Cash conversion |
0.1x |
1.0x |
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1.1x |
0.9x |
1.1x |
Adjusted EBIT - Group production |
8,552 |
9,143 |
8,757 |
11,001 |
11,345 |
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Equity shareholders' yield |
1.2% |
8.8% |
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10.2% |
11.7% |
14.2% |
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Income statement ratios |
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Valuation |
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EBITDA margin |
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7.1% |
7.1% |
6.6% |
7.5% |
7.3% |
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Calculation of target price |
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$mn |
ZAR/sh |
EBIT margin |
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4.1% |
4.1% |
3.8% |
4.7% |
4.6% |
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Industrial |
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EPS growth |
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171% |
8% |
-7% |
37% |
4% |
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Metals and minerals |
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49,756 |
53.3 |
Dividend payout ratio |
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53% |
50% |
68% |
65% |
55% |
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Energy products |
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19,822 |
21.2 |
Input assumptions |
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Marketing |
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ZAR/$ |
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13.31 |
13.24 |
14.28 |
14.40 |
14.49 |
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Metals & minerals |
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22,959 |
24.6 |
$/AUD |
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0.77 |
0.75 |
0.73 |
0.78 |
0.80 |
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Energy |
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6,104 |
6.5 |
Copper, USc/lb |
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280 |
296 |
290 |
295 |
319 |
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Agricultural |
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715 |
0.8 |
Nickel, USc/lb |
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472 |
596 |
579 |
672 |
713 |
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Corporate and other |
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-8,148 |
-8.7 |
Thermal coal, $/t |
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85 |
98 |
85 |
84 |
84 |
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Total enterprise value |
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91,208 |
97.7 |
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Net debt, financial instruments |
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-30,424 |
-32.6 |
Required breakeven price |
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Equity value as at 27/3/2019 |
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60,784 |
65.1 |
Copper, $/t |
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4,003 |
4,484 |
5,465 |
4,161 |
4,774 |
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Rounded to |
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65.0 |
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Zinc, $/t |
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953 |
1,399 |
1,503 |
1,338 |
1,184 |
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Share price on 26/3/2019 |
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59.4 |
Nickel, $/t |
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6,881 |
9,073 |
8,683 |
8,574 |
8,673 |
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Expected share price return |
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9.4% |
Coking coal, $/t |
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101 |
123 |
97 |
101 |
104 |
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Plus: expected dividend yield |
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6.8% |
Thermal coal, $/t |
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54 |
60 |
57 |
61 |
65 |
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Total implied one-year return |
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16.2% |
Sales volumes |
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Copper, kt |
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1,310 |
1,454 |
1,556 |
1,542 |
1,523 |
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Share price range, ZAR: |
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Zinc, kt |
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1,090 |
1,068 |
1,200 |
1,319 |
1,319 |
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12-month high on 15/6/2018 |
72 |
12-month low on 6/12/2018 |
48 |
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Nickel, kt |
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109 |
124 |
136 |
145 |
141 |
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Price move since high |
-17.6% Price move since low |
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23.3% |
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Coal, mnt |
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121 |
129 |
146 |
147 |
147 |
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Attributable Cu eq volumes, kt |
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4,462 |
4,844 |
5,413 |
5,555 |
5,643 |
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Calculation of discount rate |
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Volume growth |
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-5.1% |
8.6% |
11.8% |
2.6% |
1.6% |
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WACC |
9.3% |
Cost of debt |
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4.5% |
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Contribution to FY19E adjusted EBITDA |
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Risk-free rate |
4.0% |
Tax rate |
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20% |
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Equity risk premium |
6.0% After-tax cost of debt |
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3.6% |
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Marketing: |
Marketing: Agri |
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Beta |
1.30 |
Debt weighting |
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30% |
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Marketing: |
Energy |
2% |
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Copper |
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Cost of equity |
11.8% |
Terminal growth rate |
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2.5% |
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Metals |
6% |
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26% |
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14% |
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Valuation ratios |
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Oil |
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Dec-YE |
2017 |
2018 |
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2019E |
2020E |
2021E |
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1% |
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P/E multiple |
11.2x |
11.2x |
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10.7x |
7.8x |
7.5x |
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Dividend yield |
4.7% |
4.3% |
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6.3% |
8.1% |
7.3% |
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EV/EBITDA |
6.3x |
6.1x |
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5.6x |
4.7x |
4.6x |
Coking coal |
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P/B |
1.2x |
1.4x |
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1.2x |
1.1x |
1.1x |
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Zinc |
NAV per share, $ |
3.5 |
3.3 |
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3.5 |
3.7 |
3.8 |
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7% |
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NAV per share, ZAR |
46 |
44 |
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49 |
53 |
55 |
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Thermal coal |
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Nickel |
14% |
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24% |
6% |
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* Net funding less readily marketable inventories (RMI) |
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Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates |
71