Glencore (LON:GLEN), the miner and world’s commodities trader, yesterday posted very healthy first half profits despite a tricky trading environment over the period. Analysts at Citi are content with the group’s first set of result since its massive IPO in May and remain positive on its shares.
The Switzerland-based commodities group reported a 57% rise in first-half adjusted net income to $2.45 billion on sales ahead 32% to $92.12 billion.
Analysts at Citi say the “credible” interim performance was in line with their expectations at both the revenue and earnings before interest and tax (EBIT) level.
Their restrained praise for the numbers aims to point to the difficult trading conditions the company experienced in the first half.
Although commodities demand generally remained robust over the period, operations had to contend with a number of major disruptive events including Japanese Tsunami and related Fukushima nuclear accident, the socio-political turmoil in the Middle East and North Africa and, more recently, the renewed sovereign debt concerns.
“These events have coincided with a softening in the lead indicators of global growth and a peaking of inflationary pressures, particularly in developing markets. Although both trends were widely anticipated, the effect of them in the background has been to heighten market sensitivity to ongoing economic and political developments,” says the company in its statement.
Glencore, which floated in May, however remains “optimistic” about long term global economic prospects. It is confident that trends that underpin the growth of Glencore's business are firmly in place.
“The drive towards greater urbanisation and improved living standards in countries such as China and India will continue to underpin the growth in global trade," it says.
Drilling down into the results, the broker notes that the company’s marketing operations came under pressure during the period, with EBIT from the business falling from US$675m to US$576m on a quarter-on-quarter basis.
Its metals and minerals business recovered quarter on quarter, while the agricultural and energy business suffered from the Russian export ban and lower arbitrage opportunities in the second quarter.
The broker however is forecasting marketing earnings will improve in the second half of the current year, with metals and minerals benefitting from higher industrial volumes and the energy business is likely to benefit from the opening up of product margins.
Citi says higher commodity prices were the biggest driver of the year-on-year increase in group industrial EBIT.
Higher volumes also made a positive contribution, but the impact of cost growth more than cancelled this out. Costs increased 7 per cent over the period, but Citi reckons that considering the current environment of cost pressure on mining companies in the form of raw materials such as steel, fuel and labour, this result could be regarded as a positive.
In addition, the company has maintained its capex guidance, with most of its projects on schedule and on budget.
Group production growth, meanwhile, looks strong on a medium and long term horizon, says Citi, adding: “While there have been some short term delays to projects, particularly with gold production at Kazzinc and stockpiling of concentrate at Katanga, there are no major setbacks and the company’s growth profile remains intact.”
The broker notes that the company expects to deliver 50 per cent production growth in copper equivalent terms between 2011 and 2014. This would give it one of the strongest growth profiles of the UK diversified miners, it says.
The broker has increased its 2011 full year earnings forecast for Glencore by 4 per cent from $5.42 billion to $5.64 billion. It has also raised its 2012 forecast from $7.08 billion to $7.1 billion.
It rates Glencore shares a ‘buy’ with a price target of 570 pence.
Source: http://www.proactiveinvestors.co.uk
The Switzerland-based commodities group reported a 57% rise in first-half adjusted net income to $2.45 billion on sales ahead 32% to $92.12 billion.
Analysts at Citi say the “credible” interim performance was in line with their expectations at both the revenue and earnings before interest and tax (EBIT) level.
Their restrained praise for the numbers aims to point to the difficult trading conditions the company experienced in the first half.
Although commodities demand generally remained robust over the period, operations had to contend with a number of major disruptive events including Japanese Tsunami and related Fukushima nuclear accident, the socio-political turmoil in the Middle East and North Africa and, more recently, the renewed sovereign debt concerns.
“These events have coincided with a softening in the lead indicators of global growth and a peaking of inflationary pressures, particularly in developing markets. Although both trends were widely anticipated, the effect of them in the background has been to heighten market sensitivity to ongoing economic and political developments,” says the company in its statement.
Glencore, which floated in May, however remains “optimistic” about long term global economic prospects. It is confident that trends that underpin the growth of Glencore's business are firmly in place.
“The drive towards greater urbanisation and improved living standards in countries such as China and India will continue to underpin the growth in global trade," it says.
Drilling down into the results, the broker notes that the company’s marketing operations came under pressure during the period, with EBIT from the business falling from US$675m to US$576m on a quarter-on-quarter basis.
Its metals and minerals business recovered quarter on quarter, while the agricultural and energy business suffered from the Russian export ban and lower arbitrage opportunities in the second quarter.
The broker however is forecasting marketing earnings will improve in the second half of the current year, with metals and minerals benefitting from higher industrial volumes and the energy business is likely to benefit from the opening up of product margins.
Citi says higher commodity prices were the biggest driver of the year-on-year increase in group industrial EBIT.
Higher volumes also made a positive contribution, but the impact of cost growth more than cancelled this out. Costs increased 7 per cent over the period, but Citi reckons that considering the current environment of cost pressure on mining companies in the form of raw materials such as steel, fuel and labour, this result could be regarded as a positive.
In addition, the company has maintained its capex guidance, with most of its projects on schedule and on budget.
Group production growth, meanwhile, looks strong on a medium and long term horizon, says Citi, adding: “While there have been some short term delays to projects, particularly with gold production at Kazzinc and stockpiling of concentrate at Katanga, there are no major setbacks and the company’s growth profile remains intact.”
The broker notes that the company expects to deliver 50 per cent production growth in copper equivalent terms between 2011 and 2014. This would give it one of the strongest growth profiles of the UK diversified miners, it says.
The broker has increased its 2011 full year earnings forecast for Glencore by 4 per cent from $5.42 billion to $5.64 billion. It has also raised its 2012 forecast from $7.08 billion to $7.1 billion.
It rates Glencore shares a ‘buy’ with a price target of 570 pence.
Source: http://www.proactiveinvestors.co.uk
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