JPM downgrades Glencore to 'underweight' on commodity price weakness

JPMorgan said that with trade war and global recession risks having risen since new tariffs were imposed on China by the US on 1 August, the group's outlook was not quite as sturdy as it had been.

The bank's 2019 operating earnings estimates for Glencore had fallen by 40% year-to-date on the back of lower commodity prices and unresolved operational issues, with the latter accounting for around $2bn of the $8.0bn decline.

JPMorgan noted that Glencore's debt reduction prioritisation was likely to preclude expansion of the $2.0bn share buy-back programme and also highlighted that dividend support was "most vulnerable" to macro deterioration and external shocks.

"6.1/6.0x spot EV/EBITDA for 2019/20E is the most expensive of the diversifieds and a structural de-rating is credible if GLEN’s operating, geopolitical and regulatory risks are unresolved," said JPMorgan, which added that in terms of risk-adjusted returns, Glencore was "unattractive" versus the likes of Rio Tinto, BHP and Anglo American.

In addition to the downgrade from 'neutral' to 'underweight', Berenberg lowered its target price on the stock from 330p to 260p.