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Upgrades galore for Glencore as brokers set new benchmark

Thursday, November 10, 2016 9:41
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Glencore PLC (LON:GLEN) was the recipient three upgrades today as analysts reassessed prospects for miners after Donald Trump’s presidential victory.

Credit Suisse’s Liam Fitzpatrick upped his target price to 300p, from 250p, as he believes the recent re-rating of the shares has a lot further to go.

“As long as global growth is not derailed, the earnings trends and valuations for the mining sector remain compelling,” he argues.

For Glencore specifically, borrowing targets have been met, a dividend restart is imminent but the recovery in cash flows is yet to be fully priced in by the market.

“We understand investors’ nervousness around high coal prices, but even under our conservative base case estimates the company should generate FCF (free cash flow) in 2017 of over US$4.3bn/10% yield and the underpin from marketing gives the group added cash flow stability versus peers.”

Jefferies, meanwhile, likes Glencore’s coal exposure and cited it as a reason for its upgrade to ‘buy’ from ‘hold’.

“While the recent spike in coal prices may be unsustainable, we think consensus forecasts are far too low (especially for coking coal).

“Higher than expected coal prices should lead to higher than expected prices for other commodities. We have increased our coal, aluminum, copper, zinc and iron ore price forecasts.”

The broker says Glencore is trading at a free cash flow yield of 8.9% in 2017 and 11.9% in 2018, while the reinstatement of the dividend when it reports full year results should be a positive catalyst”

“This stock should perform well over the next year and would recommend buying it at current levels,” it adds with 300p the target.

HSBC, meanwhile, tips Glencore as the stand-out, (along with Rio Tinto PLC (LON:RIO), in a comprehensive overview of the mining sector as the emphasis switches to cash generation in a low demand environment.

It too has a 300p price target and a ‘buy’ recommendation.

Story by ProactiveInvestors


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