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‘Standout’ Glencore is ‘top pick’

27th June 2018

By: Martin Creamer

Creamer Media Editor

     

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JOHANNESBURG (miningweekly.com) – In a 150-page analysis of four of the world’s biggest diversified mining majors, Glencore has emerged as the top pick of financial services company Credit Suisse, which has declared the London- and Johannesburg-listed company headed by Ivan Glasenberg as the current “standout” diversified mining company.

In February, Glencore shot the lights out with a superlative set of 2017 results that coincided with a leap in its share price in Johannesburg, the reaffirmation of South Africa as an even more positive investment destination, and the mulling of a dividend "top up" later in the year.

Now the Credit Suisse analysis has come out a day after news service Bloomberg reported that Glencore is setting its ambitions on expanding in South Africa, where it is reaping rewards from the rising prices of thermal coal, chrome and ferrochrome and where it is looking to acquire Chevron Corporation's oil refining and fuel service stations.

In another plus for South Africa, Credit Suisse scolds the market for overplaying the risk of Anglo American’s South Africa exposure and applauds Anglo for successfully driving productivity improvements, operating at low cost and having unique platinum and diamond differentiation.

“With Cyril Ramaphosa taking the Presidential office, we think the political risk for Anglo has improved," the analysts state, while reiterating Glencore’s outperform rating.

"We believe Glencore could deliver a 7% volume compound annual growth rate over the next three years and, most importantly, we see Glencore as the standout company on the basis of most traditional valuation metrics,” they add.

Glencore’s high growth and latent capacity advantage is also viewed as providing the best near-term free cash flow yields in the in-depth analysis conducted by Samuel Catalano, Conor Rowley, Michael Shillaker, Alexandr Ryumin and Tom Zhang.

While Glencore receives another plus for the growth bias of its acquisition-disposal strategy, Rio Tinto’s valuation upside is described as “starting to look a little thin”, and 'big-easy' BHP’s large-scale growth prospects are pronounced as being “off the table for now”.

On the other hand, the Credit Suisse analysts state that Glencore is on track to deliver peer-leading volume and earnings growth over the next three years.

“Our analysis suggests that Glencore has the strongest internally driven volume and earnings growth and also the largest proportional cash flow capacity should it choose to flex the balance sheet to add organic or inorganic growth for the next phase,” they say.

They also point to Rio being supported by its track record of strong shareholder capital returns and BHP being widely regarded as offering the highest margins, with relatively low operational and financial gearing versus peers, but its earnings growth is seen as being muted in the medium term on the company’s hesitancy to commit to incremental volume growth, or continue with capital expenditure ‘austerity’. Big-easy’s anticipated sale of the US onshore assets is also expected to drag into 2019, further delaying any concerted shift in strategic direction.

Edited by Creamer Media Reporter

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