Giving credit, where credit is due – Glencore is undervalued on fundamentals
We regard Glencore’s 43% share price fall on distressed credit concerns to be excessive. At Glencore’s $16bn market cap, the shares imply a -$2bn equity value for its Industrial assets, yet the realisable value of these assets alone should exceed their $29bn debt. GLEN has $13bn of available liquidity to refinance $6.4bn of bonds maturing by YE’16, and its bank debt has no financial covenants. Despite its robust liquidity, we retain credit rating
concerns; at current prices, we estimate a $10bn shortfall at YE’16 to preserve its BBB. At today’s commodity prices, we believe GLEN is undervalued on fundamentals, but asset sales and/or an additional capital raise will be required to ease credit concerns. We thus remain Neutral with a £1.50/sh YE’16 PT.
Full note attached