Glencore's cost cuts, equity move convince RBC to upgrade

The investment bank said in a note on Tuesday that the FTSE 100 miner has taken steps in response to a lack of market confidence last year.

“Equity has been raised, costs have been cut significantly, capex spending has been cut back, the dividend has been cancelled, production has been cut, the 12-month RCF is being refinanced early, and finally, the divestment/deleveraging process is well advanced.”

It said with metals continuing to deteriorate, Glencore’s expected marketing profitability compression is lower than its competitors.

“We remain below consensus on FY16E Marketing EBIT, but we highlight that oil markets have provided a high level of contango over the past 6 months, presumably positive for GLEN's marketing profits.”

However, RBC Capital Markets did point out there are still quite a few risks.

“We highlight a further deterioration of commodity fundamentals could see the loss of the investment grade credit rating.

“Although we see more flexibility in the GLEN balance sheet than before, we remain cautious on how GLEN's business model would endure markedly lower prices.”

Investors weren’t taking the report to heart, with shares down 3.99p (3.88%) to 98.81 at 1129 GMT.