Glencore downgraded by Canaccord to 'hold' from 'buy'

Canaccord Genuity on Tuesday downgraded its rating on Glencore to ‘hold’ from ‘buy’ but lifted its target price to 220p from 215p.

Glencore reached a recent high of 212p per share last week, the closest the stock has traded to Canaccord’s target price this year, the broker said.

“With Glencore now pricing in closer to $240 per pound copper (in line with other ‘hold’ rated copper stocks in our universe), we downgrade to a ‘hold’ rating,” Canaccord said.

“With less than 5% potential upside to our target from highs reached last week, we would be cautious in building new positions in Glencore above this level.”

Canaccord raised its earnings before interest, tax, depreciation and amortisation (EBITDA) forecast for 2016 by 11% to $9.4bn and its 2017 EBITDA estimate up by 3% to $11.3bn, driven by lower targeted unit costs for copper, zinc and nickel.

The broker’s earnings per share forecast for 2016 has been lifted to 11 cents per share from 6 cents per share while the projection for the reinstatement of dividends in 2017 and 2018 is unchanged.

Net debt is expected to be 5-7% lower than previously estimated over the coming 18 months at $16.9bn in 2016 and $14.5bn in 2017.

“On our revisions, Glencore should be able to return a double-digit free cash flow yield of just over 10% by the end of 2017 and closer to 14-15% by 2018,” Canaccord said.

“However, on other key metrics Glencore’s return on invested capital should remain single digit through 2018, and retain a price-earnings ratio multiple which is a premium to the sector due the structure of its balance sheet and profit and loss.”