vk.com/id446425943
Glencore – HOLD
Renaissance Capital
3 December 2018
Steel
Figure 69: 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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60 |
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Market capitalisation, $mn: |
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53,330 |
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Share price, ZAR: |
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51 |
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Enterprise value, $mn: |
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92,643 |
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Potential 12-month return: |
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25.8% |
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Dec-YE |
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2016 |
2017 |
2018E |
2019E |
2020E |
Dec-YE |
2016 |
2017 |
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2018E |
2019E |
2020E |
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Income statement |
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Balance sheet |
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Revenue |
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156,466 |
208,768 |
229,737 |
230,262 |
233,284 |
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Net operating assets |
77,305 |
81,031 |
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80,934 |
80,083 |
79,651 |
Adjusted EBITDA |
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10,268 |
14,762 |
16,764 |
17,253 |
16,443 |
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Investments |
-905 |
1,322 |
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1,630 |
1,687 |
1,745 |
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Adjusted EBIT |
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3,930 |
8,552 |
10,239 |
10,383 |
9,626 |
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Equity |
44,243 |
49,755 |
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48,185 |
49,458 |
50,696 |
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Net interest |
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-1,549 |
-1,525 |
-1,497 |
-1,555 |
-1,413 |
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Minority interest |
-462 |
-300 |
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397 |
449 |
497 |
Taxation |
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-886 |
-2,276 |
-2,434 |
-1,977 |
-1,822 |
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Net funding |
32,619 |
32,898 |
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33,982 |
31,863 |
30,204 |
Minority interest in profit |
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443 |
615 |
30 |
-347 |
-319 |
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Net debt ($10-16bn)* |
15,526 |
10,673 |
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8,936 |
9,317 |
7,487 |
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Attributable profit |
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1,510 |
5,777 |
5,985 |
6,504 |
6,071 |
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Net income pre significant items |
1,992 |
5,508 |
6,502 |
6,504 |
6,071 |
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Balance sheet ratios |
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EPS (pre significant items), USc |
14.0 |
38.0 |
46.0 |
47.0 |
43.0 |
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Gearing (Net debt : (Net debt + equity)) |
42.4% |
39.8% |
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41.4% |
39.2% |
37.3% |
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Net debt / EBITDA (<2x) |
1.8x |
0.9x |
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0.6x |
0.6x |
0.5x |
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Thomson Reuters consensus EPS, USc |
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48.4 |
48.8 |
48.0 |
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RoCE |
4.4% |
9.4% |
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10.9% |
11.1% |
10.3% |
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DPS declared, USc |
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7.0 |
20.0 |
30.0 |
34.9 |
32.7 |
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RoIC (after tax) |
3.1% |
10.3% |
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9.0% |
9.1% |
8.5% |
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Adjusted EBIT |
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RoE |
4.7% |
11.7% |
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13.3% |
13.3% |
12.1% |
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2,182 |
4,496 |
4,504 |
5,059 |
5,473 |
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Cash flow statement |
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Metals and minerals |
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EBIT margin |
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9% |
15% |
15% |
15% |
16% |
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Operating cash flow |
7,527 |
11,921 |
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15,361 |
13,376 |
12,464 |
Energy products |
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-842 |
1,424 |
3,100 |
2,683 |
1,402 |
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Capex less disposals |
-3,215 |
-3,623 |
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-7,470 |
-4,454 |
-4,532 |
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EBIT margin |
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-12% |
14% |
24% |
20% |
11% |
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Other cash flows |
5,040 |
-3,987 |
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-3,221 |
0 |
0 |
Agricultural products |
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104 |
0 |
0 |
0 |
0 |
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FCF |
9,352 |
4,311 |
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4,670 |
8,922 |
7,932 |
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EBIT margin |
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3% |
- |
- |
- |
- |
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Equity shareholders' cash |
8,626 |
725 |
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2,788 |
7,350 |
6,492 |
Corporate and other |
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-329 |
-380 |
-444 |
-484 |
-492 |
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Dividends and share buy-backs |
0 |
-1,004 |
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-3,872 |
-5,230 |
-4,833 |
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Industrial EBIT |
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1,115 |
5,540 |
7,160 |
7,259 |
6,383 |
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Surplus (deficit) cash |
8,626 |
-279 |
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-1,084 |
2,120 |
1,659 |
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EBIT margin |
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3.2% |
14.0% |
16.5% |
15.8% |
13.6% |
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Cash flow ratios |
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Metals and minerals – marketing |
1,562 |
2,005 |
2,160 |
1,982 |
2,046 |
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Energy products – marketing |
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909 |
990 |
963 |
1,055 |
1,044 |
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Working capital days |
24 |
21 |
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20 |
19 |
19 |
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Other |
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344 |
17 |
-44 |
87 |
152 |
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Capex/EBITDA |
36.4% |
29.4% |
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52.3% |
30.4% |
32.6% |
Marketing EBIT |
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2,815 |
3,012 |
3,079 |
3,124 |
3,242 |
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FCF yield |
14.3% |
4.6% |
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5.4% |
10.6% |
9.6% |
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EBIT margin |
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2.0% |
1.7% |
1.6% |
1.7% |
1.7% |
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Cash conversion |
4.3x |
0.1x |
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0.4x |
1.1x |
1.1x |
Adjusted EBIT - Group production |
3,930 |
8,552 |
10,239 |
10,383 |
9,626 |
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Equity shareholders' yield |
26.0% |
1.2% |
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5.3% |
14.2% |
12.5% |
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Income statement ratios |
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Valuation |
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EBITDA margin |
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6.6% |
7.1% |
7.3% |
7.5% |
7.0% |
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Calculation of target price |
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$mn |
ZAR/sh |
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EBIT margin |
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2.5% |
4.1% |
4.5% |
4.5% |
4.1% |
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Industrial |
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EPS growth |
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38% |
171% |
21% |
2% |
-9% |
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Metals and minerals |
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51,358 |
50.6 |
Dividend payout ratio |
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50% |
53% |
67% |
74% |
76% |
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Energy products |
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22,969 |
22.6 |
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Input assumptions |
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Marketing |
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ZAR/$ |
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14.70 |
13.31 |
13.24 |
14.00 |
13.98 |
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Metals & minerals |
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23,500 |
23.1 |
$/AUD |
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0.74 |
0.77 |
0.75 |
0.75 |
0.79 |
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Energy |
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6,751 |
6.6 |
Copper, USc/lb |
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221 |
280 |
298 |
295 |
298 |
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Agricultural |
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1,223 |
1.2 |
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Nickel, USc/lb |
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435 |
472 |
606 |
628 |
659 |
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Corporate and other |
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-14,898 |
-14.7 |
Thermal coal, $/t |
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64 |
85 |
99 |
95 |
87 |
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Total enterprise value |
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90,903 |
89.5 |
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Net debt, financial instruments |
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-29,481 |
-29.0 |
Required breakeven price |
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Equity value as at 30/11/2018 |
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61,422 |
60.5 |
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Copper, $/t |
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3,590 |
4,003 |
4,305 |
4,307 |
4,318 |
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Rounded to |
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60.0 |
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Zinc, $/t |
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872 |
953 |
1,347 |
1,419 |
1,478 |
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Share price on 29/11/2018 |
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51.5 |
Nickel, $/t |
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7,616 |
6,881 |
8,717 |
9,130 |
9,781 |
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Expected share price return |
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16.6% |
Coking coal, $/t |
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101 |
123 |
120 |
113 |
114 |
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Plus: expected dividend yield |
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9.2% |
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Thermal coal, $/t |
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46 |
54 |
61 |
62 |
65 |
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Total implied one-year return |
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25.8% |
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Sales volumes |
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Copper, kt |
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1,426 |
1,310 |
1,445 |
1,551 |
1,517 |
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Share price range, ZAR: |
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Zinc, kt |
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1,094 |
1,090 |
1,073 |
1,185 |
1,230 |
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12-month high on 15/6/2018 |
72 |
12-month low on 27/11/2018 |
50 |
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Nickel, kt |
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115 |
109 |
128 |
139 |
152 |
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Price move since high |
-28.6% Price move since low |
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3.7% |
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Coal, mnt |
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125 |
121 |
133 |
145 |
148 |
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Attributable Cu eq volumes, kt |
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4,858 |
4,614 |
4,995 |
5,433 |
5,505 |
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Calculation of discount rate |
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Volume growth |
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-3.3% |
-5.0% |
8.2% |
8.8% |
1.3% |
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WACC |
9.0% |
Cost of debt |
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4.5% |
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Contribution to FY18E 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 |
6.1% After-tax cost of debt |
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3.6% |
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Marketing: |
Marketing: |
Marketing: Agri |
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Beta |
1.30 |
Debt weighting |
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35% |
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Agricultural |
Energy |
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Cost of equity |
11.9% |
Terminal growth rate |
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2.0% |
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2% |
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Copper |
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0% |
Metals |
6% |
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Oil |
13% |
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29% |
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Valuation ratios |
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Dec-YE |
2016 |
2017 |
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2018E |
2019E |
2020E |
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1% |
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Coking coal |
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P/E multiple |
16.7x |
11.2x |
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8.2x |
8.0x |
8.7x |
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Dividend yield |
3.0% |
4.7% |
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8.0% |
9.3% |
8.7% |
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4% |
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EV/EBITDA |
6.4x |
6.3x |
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5.2x |
4.9x |
5.0x |
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P/B |
0.8x |
1.2x |
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1.1x |
1.0x |
1.0x |
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NAV per share, $ |
3.1 |
3.5 |
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3.4 |
3.6 |
3.7 |
Thermal coal |
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Zinc |
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NAV per share, ZAR |
46 |
46 |
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45 |
50 |
51 |
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26% |
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Nickel… |
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14% |
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* Net funding less readily marketable inventories (RMI)
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
43
vk.com/id446425943
South32 – HOLD
Renaissance Capital
3 December 2018
Steel
Figure 70: South32, $mn (unless otherwise noted)
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South32 (Pro forma historic financials) |
S32J.J |
Target price, ZAR: |
38.0 |
Market capitalisation, $mn: |
11,327 |
Share price, ZAR: |
31.1 |
Enterprise value, $mn: |
9,048 |
Potential 12-month return: |
31% |
Jun-YE |
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2017 |
2018 |
2019E |
2020E |
2021E |
Income statement |
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Revenue |
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6,950 |
7,549 |
7,837 |
8,003 |
7,887 |
Underlying EBITDA |
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|
2,411 |
2,516 |
2,708 |
2,462 |
2,248 |
Underlying EBIT |
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|
1,648 |
1,774 |
1,945 |
1,671 |
1,465 |
Net interest |
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|
-171 |
-100 |
-94 |
-87 |
-77 |
Taxation |
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|
-393 |
-287 |
-432 |
-393 |
-337 |
Minority interest in profit |
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0 |
0 |
0 |
0 |
0 |
Attributable profit |
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|
1,231 |
1,332 |
1,419 |
1,191 |
1,052 |
Underlying earnings |
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1,146 |
1,327 |
1,419 |
1,191 |
1,052 |
Underlying EPS, USc |
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21.6 |
25.7 |
28.2 |
23.9 |
21.1 |
Thomson Reuters consensus, USc |
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28.5 |
24.6 |
24.6 |
DPS declared, USc |
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|
10.0 |
13.5 |
22.6 |
19.1 |
16.9 |
Underlying EBIT |
|
|
520 |
870 |
1,072 |
914 |
797 |
Aluminium |
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EBIT margin |
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16% |
21% |
24% |
21% |
18% |
Manganese |
|
|
577 |
837 |
744 |
468 |
452 |
EBIT margin |
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|
46% |
52% |
46% |
34% |
32% |
Nickel |
|
|
-16 |
120 |
56 |
92 |
97 |
EBIT margin |
|
|
-4% |
21% |
10% |
16% |
17% |
Cannington |
|
|
308 |
183 |
83 |
142 |
160 |
EBIT margin |
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|
40% |
31% |
17% |
25% |
27% |
Energy Coal South Africa |
|
|
212 |
276 |
261 |
227 |
206 |
EBIT margin |
|
|
19% |
20% |
19% |
16% |
15% |
Illawarra Metallurgical Coal |
|
|
358 |
-62 |
187 |
150 |
66 |
EBIT margin |
|
|
32% |
-9% |
18% |
14% |
7% |
Other |
|
|
-311 |
-450 |
-457 |
-322 |
-312 |
Underlying EBIT |
|
|
1,648 |
1,774 |
1,945 |
1,671 |
1,465 |
Income statement ratios |
|
|
|
|
|
|
|
EBITDA margin |
|
|
35% |
33% |
35% |
31% |
29% |
EBIT margin |
|
|
24% |
23% |
25% |
21% |
19% |
EPS growth |
|
|
731% |
19% |
10% |
-15% |
-12% |
Dividend payout ratio |
|
|
46% |
53% |
80% |
80% |
80% |
Input assumptions |
|
|
|
|
|
|
|
Aluminium, $/t |
|
|
1,772 |
2,133 |
2,106 |
2,175 |
2,233 |
Manganese ore (44%, CIF China), $/mtu |
|
5.72 |
6.79 |
6.33 |
5.25 |
5.46 |
|
Silver, $/oz |
|
|
18 |
17 |
15 |
17 |
18 |
Hard coking coal, $/t |
|
|
190 |
200 |
194 |
179 |
159 |
$/AUD |
|
|
0.75 |
0.78 |
0.73 |
0.77 |
0.80 |
Required breakeven price |
|
|
|
|
|
|
|
Aluminium, $/t |
|
|
1,389 |
1,747 |
1,741 |
1,714 |
1,695 |
Manganese ore, $/dmtu |
|
|
2.36 |
2.96 |
3.15 |
3.04 |
3.16 |
Silver, $/oz |
|
|
-2.34 |
1.90 |
7.22 |
4.11 |
4.27 |
Metallurgical coal, $/t |
|
|
117 |
208 |
141 |
140 |
135 |
Sales volumes (South32's share) |
|
|
|
|
|
|
|
Aluminium, kt |
|
|
986 |
985 |
978 |
988 |
988 |
Silver, mn oz |
|
|
16 |
12 |
12 |
12 |
12 |
Metallurgical coal, mnt |
|
|
6.0 |
2.9 |
4.9 |
5.8 |
6.0 |
Manganese ore (Samancor total), mnt |
|
8.5 |
9.0 |
8.7 |
9.0 |
9.0 |
|
Attributable Cu eq volumes, kt |
|
|
1,278 |
1,214 |
1,240 |
1,281 |
1,283 |
Volume growth |
|
|
-6.6% |
-5.0% |
2.1% |
3.3% |
0.1% |
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|
|
||
Contribution to FY19E underlying EBITDA |
|
|
|
|
|
||
|
Illawarra |
|
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|
|
|
|
Metallurgical Coal |
|
|
|
|
|||
Cannington |
11% |
|
|
|
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Aluminium |
|
4% |
|
|
|
|
|
44% |
|
Energy Coal South |
|
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|
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|
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|
Africa
10%
Nickel
5%
Manganese
26%
Jun-YE |
|
|
|
|
|
|
|
|
2017 |
2018 |
|
2019E |
2020E |
2021E |
|
Balance sheet |
|
|
|
|
|
|
|
Net operating assets |
|
8,027 |
7,977 |
|
9,056 |
8,958 |
8,975 |
Rehab provision net of investments |
|
568 |
691 |
|
705 |
719 |
734 |
Equity |
|
10,236 |
10,710 |
|
10,888 |
11,007 |
11,177 |
Minority interest |
|
-1 |
-1 |
|
-1 |
-1 |
-1 |
Net debt (cash) |
|
-1,640 |
-2,041 |
|
-1,126 |
-1,328 |
-1,468 |
Balance sheet ratios |
|
|
|
|
|
|
|
Gearing (net debt/(net debt+equity)) |
|
-19.1% |
-23.5% |
|
-11.5% |
-13.7% |
-15.1% |
Net debt to EBITDA |
|
-0.7x |
-0.8x |
|
-0.4x |
-0.5x |
-0.7x |
RoCE |
|
15.7% |
17.3% |
|
17.9% |
14.6% |
12.9% |
RoIC (after tax) |
|
15.1% |
15.5% |
|
16.0% |
10.2% |
9.5% |
RoE |
|
12.5% |
12.7% |
|
13.1% |
10.9% |
9.5% |
Cash flow statement |
|
|
|
|
|
|
|
Operating cash flow |
|
2,350 |
2,015 |
|
2,549 |
1,963 |
1,860 |
Capex (net of disposals) |
|
-316 |
-430 |
|
-2,142 |
-614 |
-771 |
Other cash flow |
|
162 |
-29 |
|
0 |
0 |
0 |
FCF |
|
2,196 |
1,556 |
|
407 |
1,349 |
1,089 |
Equity shareholders' cash |
|
1,783 |
1,363 |
|
327 |
1,274 |
1,020 |
Dividends and share buy backs |
|
-455 |
-962 |
|
-1,241 |
-1,072 |
-881 |
Excess cash |
|
1,328 |
401 |
|
-915 |
202 |
140 |
Cash flow ratios |
|
|
|
|
|
|
|
Working capital days |
|
38 |
46 |
|
42 |
41 |
41 |
Capex/EBITDA |
|
15.1% |
21.2% |
|
93.3% |
28.1% |
38.9% |
FCF yield |
|
26.4% |
15.5% |
|
4.0% |
13.5% |
11.0% |
Equity shareholders' yield |
|
17.9% |
11.3% |
|
2.9% |
11.2% |
9.0% |
Cash conversion |
|
1.6x |
1.0x |
|
0.2x |
1.1x |
1.0x |
Capital returns/market cap |
|
4.6% |
8.0% |
|
11.0% |
9.5% |
7.8% |
Valuation |
|
|
|
|
|
|
|
Calculation of TP |
|
|
|
|
$mn |
ZAR/sh |
|
Aluminium |
|
|
|
|
7,001 |
19.7 |
|
Manganese |
|
|
|
|
1,834 |
5.2 |
|
Nickel |
|
|
|
|
637 |
1.8 |
|
Cannington |
|
|
|
|
645 |
1.8 |
|
Hermosa |
|
|
|
|
226 |
0.6 |
|
Energy Coal South Africa |
|
|
|
|
751 |
2.1 |
|
Illawarra Metallurgical Coal |
|
|
|
|
746 |
2.1 |
|
Corporate and other |
|
|
|
|
-785 |
-2.2 |
|
Enterprise value as at 30-11-2018 |
|
|
|
|
11,055 |
31.1 |
|
Investments as at 30 June 2018 |
|
|
|
|
691 |
1.9 |
|
Cash used in share buy-backs during 2019E |
|
|
|
|
-379 |
-1.1 |
|
Net cash (debt) as at 30 June 2018 |
|
|
|
|
2,041 |
5.7 |
|
Equity value as at 2-9-2016 |
|
|
|
|
13,408 |
37.7 |
|
Rounded to |
|
|
|
|
|
38.0 |
|
Share price on 29/11/2018 |
|
|
|
|
|
31.1 |
|
Expected share price return |
|
|
|
|
|
22.4% |
|
Plus: expected dividend yield |
|
|
|
|
|
8.3% |
|
Total implied one-year return |
|
|
|
|
|
30.7% |
|
Share price range, ZAR: |
|
|
|
|
|
|
|
12-month high on 4/10/2018 |
45 |
12-month low on 22/2/2018 |
28 |
||||
Price move since high |
-30.6% Price move since low |
|
12.1% |
||||
Calculation of discount rate |
|
|
|
|
|
|
|
WACC |
10.3% |
Cost of debt |
|
|
4.0% |
||
Risk-free rate |
4.0% |
Tax rate |
|
|
30% |
||
Equity risk premium |
5.5% After-tax cost of debt |
|
2.8% |
||||
Beta |
1.30 |
Debt weighting |
|
10% |
|||
Cost of equity |
11.2% |
Terminal growth rate |
|
2.0% |
|||
Valuation ratios |
|
|
|
|
|
|
|
Jun-YE |
|
2017 |
2018 |
|
2019E |
2020E |
2021E |
P/E multiple |
|
8.8x |
9.2x |
|
8.1x |
9.5x |
10.8x |
Dividend yield |
|
5.2% |
5.7% |
|
9.9% |
8.4% |
7.4% |
Capital returns/market cap |
|
4.6% |
8.0% |
|
11.0% |
9.5% |
7.8% |
EV/EBITDA |
|
3.4x |
4.0x |
|
3.8x |
4.1x |
4.4x |
P/B |
|
1.0x |
1.1x |
|
1.0x |
1.0x |
1.0x |
NAV per share, $ |
|
2.0 |
2.1 |
|
2.2 |
2.2 |
2.2 |
NAV per share, ZAR |
|
27 |
27 |
|
31 |
31 |
31 |
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
44