Glencore: Breakout Imminent

seekingalpha07-16

Global PMIs bottomed in October 2023 and a breakout in value stocks is confirming this.Glencore just bought a majority of Teck's profits for about 25% of the value of market value of the company.The ...

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The monthly chart confirms this.   Bet_NoireGlobal Economic Recovery Let us start with the quarterly chart of the iShares MSCI Global Select Metals and Mining Producers ETF (PICK):   BarchartNote that the lower trend line here is from the monthly chart (left in place).  PICK includes large concentrations of the major industrial metal miners, such as BHP (BHP), Rio Tinto (RIO), Freeport McMoran (FCX), and Glencore (OTCPK:GLNCY; OTCPK:GLCNF)—a 1/3 of the fund is these 4 names—and small doses of many other producers. Quarterly charts reveal the long-term trend. PICK looks like its ready for lift-off after consolidating for roughly 3 1/2 years. My explanation for this is that we are in the early stages of a global cyclical economic recovery as evidenced by the Global Composite PMI moving higher. In fact, the Global PMIs bottomed in October 2023 and value stocks have been moving higher ever since, as evidenced by the following chart of the Vanguard Value ETF (VTV): Data by YChartsChina has yet to move though which may explain why metals producers are lagging the broader value breakout: Data by YChartsGlencore Here we have the chart of Glencore in London and in GBP:   BarchartI have been impressed with the leadership of Gary Nagle at Glencore. He speaks to investors confidently from a well thought out strategy and is not scripted like many of his peers. He recently engineered the purchase of one of the top steelmaking coal businesses in the world for roughly 5 times earnings. Steelmaking coal accounted for 80% of Teck's (TECK) gross profit last year. Glencore spent $6.9 billion for a 77% stake in this business. Teck now has a market cap of $26 billion so Glencore purchased ~2/3s of the profits for ~25% of the price. In the long run, this steelmaking coal business will probably make a lot more money for Glencore's shareholders than copper will ever make for Teck shareholders. If the global economy is in the early stages of a cyclical recovery, then the timing is just about right. The new revised version of Glencore will derive about 28% of its profit from thermal coal, 24% from copper, 16% from steelmaking coal, 16% from commodity trading, with the remaining 16% coming from zinc, cobalt, silver, lead, nickel, ferroalloys, aluminium, vanadium, oil refining, and a few other misc commodities. It is important to understand what drives earnings and what drives the dividend which will likely range from 6% to 8% in the current profitability regime.  The steelmaking coal acquisition will boost overall coal EBITDA margins from the mid-30% range to the mid-40% range at current prices. I see copper EBITDA margins at roughly 30% at current copper prices. These core Glencore businesses underpin solid free cash flows likely to be in the $8 billion range over the next 4 quarters. This is solid for a $75 billion market cap company. I see Glencore earning $.64 per share (U.S. dollars) over the next 4 quarters. This is assumes $125 per tonne thermal coal, $4.50 per lb. copper, and $250 per tonne coking coal. My target multiple is 11.5 times free cash flow which gives me a target price of USD $7.36 or GBP 5.70. Add in the dividend and this is roughly 30% upside. If you go back to my monthly chart of Glencore in GBP you will see that 5.7 is about smack dab in the middle looking out 12 months. This is exactly what I want to see and an important part of my investment process—fundamentals aligning with monthly chart trajectory. Taken altogether, a breakout is imminent.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2451911485"}