Glencore

Target price, ZAR:

65

Share price, ZAR:

59

16.2%

Dec-YE

2017

2019E

2020E

2021E

Dec-YE

2017

2018

2019E

2020E

2021E

Balance sheet

Revenue

208,768

230,457

232,754

244,031

Net operating assets

81,031

76,503

76,073

76,572

76,062

Adjusted EBITDA

14,762

15,208

17,419

17,840

Investments

1,322

1,018

1,089

1,161

1,235

Adjusted EBIT

8,552

8,757

11,001

11,345

Equity

49,755

45,738

46,104

49,519

50,362

Net interest

-1,525

-1,537

-1,496

-1,356

Minority interest

-300

-355

-312

-257

-200

Taxation

-2,276

-1,804

-2,277

-2,375

Net funding <$36bn

32,898

32,138

31,371

28,472

27,136

Minority interest in profit

615

-284

-370

-376

Net debt ($10-16bn)*

10,673

14,710

13,431

9,823

7,502

Attributable profit

5,777

5,132

6,858

7,238

Net income pre significant items

5,508

5,132

6,858

7,238

Balance sheet ratios

EPS (pre significant items), USc

38.0

38.0

52.0

54.0

Gearing (Net debt : (Net debt + equity))

39.8%

41.3%

40.5%

36.5%

35.0%

Net debt/EBITDA (<2x)

0.9x

1.1x

1.1x

0.7x

0.5x

Thomson Reuters consensus EPS, USc

36.6

39.9

41.6

RoCE

9.4%

10.0%

9.9%

12.4%

12.8%

DPS declared, USc

20.0

25.8

33.1

29.7

RoIC (after tax)

10.3%

7.2%

7.9%

10.4%

10.4%

Adjusted EBIT

RoE

11.7%

12.1%

11.2%

14.3%

14.5%

4,496

3,627

6,599

7,003

Cash flow statement

Metals and minerals

EBIT margin

15%

12%

19%

19%

Operating cash flow

11,921

16,080

11,606

12,363

13,138

Energy products

1,424

2,557

1,697

1,385

Capex less disposals

-3,623

-4,777

-4,564

-4,469

-3,961

EBIT margin

14%

20%

13%

11%

Other cash flows

-3,987

-4,435

0

0

0

Agricultural products

0

0

0

0

FCF

4,311

6,868

7,042

7,894

9,176

EBIT margin

-

-

-

-

Equity shareholders' cash

725

5,638

5,534

6,343

7,731

Corporate and other

-380

-459

-502

-520

Dividends and share buy-backs

-1,004

-4,878

-4,766

-3,443

-6,395

Industrial EBIT

5,540

5,726

7,794

7,868

Surplus (deficit) cash

-279

760

767

2,899

1,336

EBIT margin

14.0%

13.1%

16.3%

15.9%

Cash flow ratios

Metals and minerals – marketing

2,005

2,120

2,226

2,344

Energy products – marketing

990

929

876

926

Working capital days

21

19

16

17

18

Other

17

-17

105

206

Capex/EBITDA

29.4%

35.2%

35.9%

30.1%

26.3%

Marketing EBIT

3,012

3,032

3,207

3,477

FCF yield

4.6%

7.2%

8.2%

9.6%

11.3%

EBIT margin

1.7%

1.6%

1.7%

1.8%

Cash conversion

0.1x

1.0x

1.1x

0.9x

1.1x

Adjusted EBIT - Group production

8,552

8,757

11,001

11,345

Equity shareholders' yield

1.2%

8.8%

10.2%

11.7%

14.2%

Income statement ratios

Valuation

EBITDA margin

7.1%

6.6%

7.5%

7.3%

Calculation of target price

$mn

ZAR/sh

EBIT margin

4.1%

3.8%

4.7%

4.6%

Industrial

EPS growth

171%

-7%

37%

4%

Metals and minerals

49,756

53.3

Dividend payout ratio

53%

68%

65%

55%

Energy products

19,822

21.2

Input assumptions

Marketing

ZAR/$

13.31

14.28

14.40

14.49

Metals & minerals

22,959

24.6

$/AUD

0.77

0.73

0.78

0.80

Energy

6,104

6.5

Copper, USc/lb

280

290

295

319

Agricultural

715

0.8

Nickel, USc/lb

472

579

672

713

Corporate and other

-8,148

-8.7

Thermal coal, $/t

85

85

84

84

Total enterprise value

91,208

97.7

Net debt, financial instruments

-30,424

-32.6

Required breakeven price

Equity value as at 27/3/2019

60,784

65.1

Copper, $/t

4,003

5,465

4,161

4,774

Rounded to

65.0

Zinc, $/t

953

1,503

1,338

1,184

Share price on 26/3/2019

59.4

Nickel, $/t

6,881

8,683

8,574

8,673

Expected share price return

9.4%

Coking coal, $/t

101

97

101

104

Plus: expected dividend yield

6.8%

Thermal coal, $/t

54

57

61

65

Total implied one-year return

16.2%

Sales volumes

Copper, kt

1,310

1,556

1,542

1,523

Share price range, ZAR:

Zinc, kt

1,090

1,200

1,319

1,319

12-month high on 15/6/2018

72

12-month low on 6/12/2018

48

Nickel, kt

109

136

145

141

Price move since high

-17.6% Price move since low

23.3%

Coal, mnt

121

146

147

147

Attributable Cu eq volumes, kt

4,462

5,413

5,555

5,643

Calculation of discount rate

Volume growth

-5.1%

11.8%

2.6%

1.6%

WACC

9.3%

Cost of debt

4.5%

Contribution to FY19E adjusted EBITDA

Risk-free rate

4.0%

Tax rate

20%

Equity risk premium

6.0% After-tax cost of debt

3.6%

Marketing:

Marketing: Agri

Beta

1.30

Debt weighting

30%

Marketing:

Energy

2%

Copper

Cost of equity

11.8%

Terminal growth rate

2.5%

Metals

6%

26%

14%

Valuation ratios

Oil

Dec-YE

2017

2018

2019E

2020E

2021E

1%

P/E multiple

11.2x

11.2x

10.7x

7.8x

7.5x

Dividend yield

4.7%

4.3%

6.3%

8.1%

7.3%

EV/EBITDA

6.3x

6.1x

5.6x

4.7x

4.6x

Coking coal

P/B

1.2x

1.4x

1.2x

1.1x

1.1x

Zinc

NAV per share, $

3.5

3.3

3.5

3.7

3.8

7%

NAV per share, ZAR

46

44

49

53

55

Thermal coal

Nickel

14%

24%

* Net funding less readily marketable inventories (RMI)