Glencore set to outperform, Macquarie says

Management at Glencore would not waste the chance to reassure investors about its ability to safeguard its credit metrics at its next investor update, analysts at Macquarie said.

“More than any miner” the commodities trader had the capacity to surprise, so the Australian broker recommended clients buy the stock ahead of the 10 December event.

News in the first half of 2016 about the sale of its agri stake and copper asset sales would help Glencore buck the trend of commodity price drops and see it outperform rivals, Macquarie said.

Nonetheless, at then current ‘spot’ prices the outfit needed to announce between $500-900m in sustainable operational cost savings to
forestall the risk of a downgrade to its credit ratings, avoid the sale of ‘core’ assets and boost operating profits.

As well, while two-thirds of the original $10bn debt reduction plan had already been carried out, there was “substantial scope” for that target to be increased to at least $14bn.

The sale of Cobar, Lomas Bayas and the agri unit stake could raise an additional $3-6bn in funds, on top of the $2bn which had already been earmarked, the broker explained.

A debt reduction target of between $14-16bn was “achievable”, Macquarie said.

The broker reiterated its ‘outperform’ recommendation and 12-month sum-of-the parts target price of 200p.