Glencore could benefit from metals upside after fatal Norilsk accident, says JP Morgan

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Glencore PLC (LON:GLEN) was upgraded to ‘overweight’ from ‘neutral’ by JP Morgan to reflect greater confidence in the outlook after last week’s results, improving operational stability and new guidance.

Miners in the Europe, the Middle East and Africa region are cheap, analysts reckon, so they raised ten-year yield forecasts to 1.65% based on the US$1.7 trillion US fiscal stimulus package.

READ: Glencore revenues drop a third but earnings remain flat despite pandemic impact

Glencore has the highest exposure to base metals and copper, which account for 40% of underlying earnings (EBITDA), among its UK competitors, so there are more upside risks in terms of supply of copper and nickel due to an accident at Norilsk over the weekend.

The investment bank added that Glencore retains higher regulatory and ESG risks than BHP, RIO and Anglo American, but an improving operational outlook and surging earnings momentum create a low bar to the revised price target of 350p even under conservative commodity price forecasts.

“GLEN’s investment case is more intrinsically linked to its leverage than peers in our view, due to the debt funding demands of its marketing activities,” analysts noted.

“On spot we forecast net debt falls to US$8.5bn at December 2021 and US$3.5bn at December 2022 versus US$16bn at December 2020.”

Shares rose 1% to 303.05p on Monday late morning.


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