Tuesday, February 20, 2018

What to Watch Before Glencore Results:Dividends, M&A and Congo

Two things to keep in mind when appraising any story on DR Congo is the country's mineral wealth was estimated in 2009 at $24 Trillion and the per capita GDP is estimated at between $450 and $800 per year depending on your source and whether you prefer nominal or purchasing power parity.

Life is cheap and there is enough loot to kill for, much less lie, cheat and steal.

From Bloomberg via Swissinfo.ch:
With Glencore Plc expected to report a record profit Wednesday, the market will be looking for signs of what the world’s biggest commodities trader plans to do with all the money it’s raking in.
"The question will be how much cash do they return to shareholders and how much cash could they invest in M&A?" said Macquarie Group Ltd. analyst Alon Olsha.

A chunk of that cash comes from its powerful marketing business, which will have delivered its strongest trading performance since the global financial crisis if it tops last year’s earnings of $2.82 billion.

The company has a new policy of paying out a minimum of $1 billion plus 25 percent of industrial free cashflow, which will probably work out to about $2.1 billion to $2.2 billion, Macquarie estimates.

Anything above that might signal Glencore’s appetite for big-ticket acquisitions is diminished, Olsha said, although he added that’s unlikely.

While Glencore’s competitors such as Rio Tinto Group have shied away from dealmaking in the last 12 months, making record returns to shareholders instead, Chief Executive Officer Ivan Glasenberg has continued to do what he knows best. Glencore announced acquisitions worth more than $4 billion in 2017 in copper, oil, zinc and coal.

That’s likely to continue, said Investec Plc analyst Hunter Hillcoat.
"There’s always been a mantra that Glencore prefers deals to dividends and I don’t expect that to change."

Last year Glencore was rebuffed when it approached U.S. grain giant Bunge Ltd. and is still on the hunt to expand its agriculture business.

Though any new announcement in Wednesday’s results is unlikely, agriculture and trading are the most probable targets in the next 12 months over traditional mining assets, Macquarie’s Olsha said.
The Congo Question
On a results day that analysts say is unlikely to deliver many surprises, one big question mark hanging over Glencore is the potential impact of proposed legal changes in the Democratic Republic of Congo on its African copper business. The company has positioned its Congo mines as central to its market-leading position in the supply of metals to the electric-vehicle industry....MORE