Morgan Stanley ups Glencore to 'overweight'

“Reinvestment or return of excess cash is the key value driver ahead. Here, the group's options and track record are comparable to peers.”

The bank said that the downside to its new price target and the risk reward skew is comparable also. It pointed out that Glencore's estimated 2017 free cash flow yield of 2.5% is similar to its diversified peers at 11.9% on spot.

“A payout ratio based dividend policy ensures the bulk of free cash flow will flow back to shareholders. It also has reinvestment opportunities to generate some growth. Finally, in 2015/16 the marketing division has demonstrated its countercyclical cash flows in a weak commodity price environment.”

MS said it expects near-term earnings growth to be driven by extra volumes in African copper and global zinc.

It reckons that on spot prices, higher production from these assets will add $3bn and $0.75bn to earnings before interest, taxes, depreciation and amortisation, respectively, versus group EBITDA of $10bn in 2016.

At 1245 GMT, the shares were up 2.5% to 328.68p.