Goldman Sachs upgrades Glencore on exposure to copper and zinc

Maryam Cockar Sharecast | 15 Mar, 2017 09:46 - Updated: 14:20 | | |

glencore, mining, commodities, metals, mine, smelter

Goldman Sachs has upgraded Glencore to ‘buy’ due to its favourable commodity exposure, although it expects the sector to remain choppy due to more negative investor sentiment.

The bank upgraded the Anglo-Swiss miner to ‘buy’ from ‘neutral’ with a new price target of 390p due to a positive commodity exposure as about 50% of 2017 financial year earnings will come from copper and zinc, which the bank sees offering upside from their current spot prices.

Glencore’s marketing division provides downside protection too and investors would likely leave rivals BHP Biliton and Rio Tinto and go to Glencore as sentiment around iron-ore continues to turn negative, Goldman said.

Nevertheless, the bank also reiterated its ‘Buy’ ratings on miners Vedanta, Anglo American, Lundin, Norsk and Nyrstar.

Goldman Sachs thinks miners are attractive on spot as they are trading between two and three turns below their mid-cycle multiples and expects them to generate double digit cash flows for the 2017/18 financial year.

However, confidence in spot prices remains low but the bank said that even though commodity prices are likely to fall, the free cash flow generated in the meantime will lead to lower net debt - meaning valuations could be higher.

Sentiment towards commodities has turned negative as China's growth targets are lowered with Beijing planning to focus on managing financial stability risks, the US Federal Reserve’s outlook is increasingly becoming hawkish while the outlook for oil prices has turned slightly bearish after an inventory build up in the US, which was revealed last week. Timing was also important as miners typically underperform from March till May.

The bank's analysts added that the lack of clear signals means the sector remains choppy as the "around 6.5%" China GDP growth target has led to investors believing that the government could look to tighten monetary policy.

“Our view remains that even though commodity prices will be lower than spot – what’s important is the path they take. If prices taper slowly (which is our view) the significant free cash flow generation would likely see net debt fall – which means valuations even at lower commodity prices can be higher.”

Shares in Glencore were up 2.23% to 323.10p at 0812 GMT.

More news

27 Mar US close: Stocks end mostly lower amid doubts about Trump agenda

US stocks ended mostly lower on Monday, with the Dow notching its longest losing streak since August 2011 amid growing doubts about President Donald Trump’s ability to push through his economic agenda.

27 Mar Fed's Evans sounds dovish note

A top US central bank official sounded a relatively dovish note on Monday.

27 Mar Bonds: Treasuries start week on a strong note, Bunds underperform

These were the movements in the most closely-followed 10-year sovereign bond yields: US: 2.37% (-4bp)UK: 1.17% (-3bp)Germany: 0.42% (-0bp)France: 0.97% (-1bp)Spain: 2.20% (-3bp)Italy: 2.20% (-3bp)Portugal: 4.08% (-6bp)Greece: 7.26% (-15bp) Japan: 0.06% (-1bp)

27 Mar Europe close: Stocks end lower, but off worst levels

Europe' main indices traded lower on Monday as doubts over US president Donald Trump’s agenda crept in, sending the euro higher, despite an upbeat reading on German business confidence and positive news on the political front in the Eurozone's largest nation.

27 Mar London close: FTSE falls on resources, financials as Trump's ability to deliver scrutinised

Equities in London closed the day much lower with investors selling resources stocks and heading for gold on doubts about whether US President Donald Trump will be able to deliver on his healthcare and fiscal stimulus promises.

27 Mar Directors dealings: Babcock chief, chairman buy on weakness

Babcock's boss and chairman both picked up shares in the company they lead at the start of the week.

27 Mar US open: Dow heading to longest losing run in 6 years on Trump concerns

US stocks opened lower on Monday putting the Dow on track for its longest losing streak since 2011 amid growing doubts about President Donald Trump’s ability to push through his economic agenda.

27 Mar Tuesday preview: Ladbrokes Coral and Wolseley results due

Tuesday's financial calendar sees Ladbrokes Coral and Wolseley among the larger of those reporting results, while headlines may be grabbed by the Scottish Parliament as it votes on whether to support a second independence referendum the day before Theresa May's planned announcement about kicking off the Brexit negotiation process.

27 Mar FTSE 250 movers: Inchcape motors on; miners lose their lustre

A positive note on Inchcape saw shares in the automotive services and retailer lead the risers on the FTSE 250.

27 Mar Exova confirms discussions with potential suitors

Exova Group, noting recent market speculation, confirmed on Monday it received proposals from Element Materials Technology, Jacobs Holding and PAI Partners SAS regarding a possible cash offer for the company.