Integration Of EVR And Rising Copper Output Will Drive Success

Key Takeaways

• Integration of coal assets and supply discipline could drive earnings via synergies, cost reductions, and potentially higher pricing, boosting margins and revenues.
  
• Long-term copper production growth and focus on shareholder returns through buybacks and dividends aim to enhance revenues, earnings, and shareholder value.
  
• Volatility in commodity prices and geopolitical risks could harm Glencore's revenues, while delays and execution risks may threaten long-term growth and profitability.

Catalysts

Engages in the production, refinement, processing, storage, transport, and marketing of metals and minerals, and energy products in the Americas, Europe, Asia, Africa, and Oceania.

• Integration of EVR (Elk Valley Resources), a Tier 1 steelmaking coal asset, is expected to drive future earnings through operational synergies, cost reductions, and enhanced marketing efficiencies. This contributes to improved net margins and EBITDA growth.
  
• Glencore's strategic commitment to remain supply disciplined, including plans to potentially reduce coal production, aims to tighten market supply and potentially support higher future pricing. This could positively impact revenue growth and net margins.
  
• Glencore has emphasized a long-term growth trajectory in copper production, with plans to increase its base business to 1 million tonnes annually by 2028. This projected increase in copper volumes, coupled with low capital intensity projects, is likely to enhance future revenues and earnings.
  
• The company is focused on shareholder returns through resumed buybacks and dividends, including the allocation of future cash flows from noncore asset sales, such as potential monetization of the Bunge stake. This strategy supports enhanced EPS and shareholder value.
  
• Discussion around potential new exchange listings suggests a strategic move to optimize valuation and shareholder base, potentially increasing market perception and improving stock valuation and investor sentiment.

Glencore Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Glencore's revenue will decrease by 0.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.7% today to 2.3% in 3 years time.
• Analysts expect earnings to reach $5.2 billion (and earnings per share of $0.44) by about April 2028, up from $-1.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $7.4 billion in earnings, and the most bearish expecting $4.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, up from -25.3x today. This future PE is greater than the current PE for the GB Metals and Mining industry at 8.6x.
• Analysts expect the number of shares outstanding to decline by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.16%, as per the Simply Wall St company report.

Glencore Future Earnings Per Share Growth

Risks

• Volatility in commodity prices, particularly in energy and metal markets, could negatively impact revenue projections and net margins, creating uncertainty in future earnings.
  
• Supply chain and geopolitical risks, including tariffs and embargoes on Russian products, could disrupt operations and affect Glencore's marketing and industrial businesses, leading to reduced revenues and increased costs.
  
• Depressed cobalt prices and other market conditions affecting the African copper assets could render them less profitable, potentially reducing Glencore's earnings from this sector.
  
• Delays in major projects due to waiting for favorable market conditions, such as those in the copper segment, could stifle projected expansions and long-term revenue growth.
  
• Execution risks related to new project development, especially greenfield projects like El Pachon, and the unknown factors in international jurisdictions, might lead to increased capital expenditures without timely returns, affecting net margins and cash flow.

Valuation

• The analysts have a consensus price target of £3.912 for Glencore based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £4.53, and the most bearish reporting a price target of just £2.99.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $229.0 billion, earnings will come to $5.2 billion, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of £2.56, the analyst price target of £3.91 is 34.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.