On Monday, Barclays raised shares of Glencore (OTC:) Plc (GLEN:LN) (OTC: GLCNF) to overweight from equal weight and set a new price target of £5.50, up from the previous £5.10.
According to the firm’s analysis, the Elk Valley Resources (EVR) acquisition is expected to significantly accrete Glencore’s EBITDA between 2024 and 2026. According to Barclays’ commodity price deck, the projected increases are 13%, 19%, and 13%, respectively, and even higher based on spot prices.
Highlighting the financial metrics of the deal, Barclays analysts forecast an internal rate of return (IRR) of 17% for Glencore’s acquisition of EVR, assuming a long-term hard coking coal (HCC) price of $225 a tonne, up from a previous estimate of $180 a tonne.
The acquisition is expected to be paid off over 6.2 years in 2025, implying a present value to net present value (P/NPV) ratio of 0.75x and an enterprise value to EBITDA (EV/EBITDA) multiple of 3.2x.
The valuation of this deal is based on today’s HCC price of $209/ton. Considering a spot price of $249/ton, the IRR of this deal increases to 20%, the payback period shortens to 5.1 years and the P/NPV improves to 0.61x.
Barclays has assessed that the terms of Glencore’s acquisition compare favourably with recent industry transactions. South 32 The sale of Illawarra by (OTC:) implied an HCC price of $240/tonne and a P/NPV of 2.3x at a long-term price of $180/tonne, or 1.2x at $225/tonne.
Barclays’ upgrade of Glencore’s shares follows its positive assessment of the Elk Valley acquisition and its impact on Glencore’s future financial results, which it views as attractive, particularly relative to current market prices and peer transactions.
InvestingPro Insights
Barclays’ recent upgrade of Glencore’s rating highlights the company’s strategic move to add value through its acquisition of Elk Valley Resources. Investment Professional Data and insights paint a comprehensive picture of Glencore’s financial health and market position. With a market capitalization of $75.41 billion and a P/E ratio that has adjusted over the past 12 months to a more attractive 12.77 as of Q4 2023, investors are turning to companies with strong fundamentals. Despite a 14.91% decline over the same period, revenues of $217.83 billion show the scale of Glencore’s operations.
From an investment perspective, Glencore’s management has been aggressive in buying back shares, a sign of confidence in the company’s value. In addition, the company has not only increased its dividend for three consecutive years, but also provided a substantial dividend to shareholders, InvestingPro Tips These highlight the company’s high shareholder yield. These factors, combined with a strong free cash flow yield and low price volatility, make Glencore an attractive choice for investors looking for stability and consistent earnings in the metals and mining industry.
If you are interested in more information and tips, Investment Professional We provide additional guidance on Glencore, including 11 tips for potential investors. Use our coupon code to access these valuable insights and make the most informed decision. ProNews 24 Save up to 10% on annual Pro and annual or biennial Pro+ subscriptions with InvestingPro.
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