The Gold Report - Tue, Feb 27, 2018

Miner's 2017 EBITDA Yields Significant Return on Investment

BMO Capital Markets analyst Edward Sterck shared this company's recently released 2017 financials and 2018 guidance, describing the factors behind an upswing in shareholder returns.

Gold coins

According to a Feb. 21 BMO Capital Markets research note, Glencore International Plc's (GLEN:LSE) 2017 EBITDA was $14.8 billion ($14.8B) and in line, "driving significantly increased shareholder returns," reported analyst Edward Sterck. The company achieved a profit of $5,508 million, or $0.39 per share. This surpassed consensus, which was $0.38 per share, but lagged BMO's forecast of $0.40 per share.

Revenue also was in line, at $205.5B. Adjusted earnings of $5.5B, however, were about 5% below BMO's estimate.

Dividends amounted to $2.9B, or $0.20 per share, for full year 2017. "This is well above the committed minimum of $1.0B plus $25% of industrial cash flows and two times our forecast of $0.10 per share," noted Sterck.

The analyst provided the EBITDA for each of four Glencore commodities, all of which have increased year over year:

1. Copper: $4.4B, up 31% since 2016 but 6% below BMO's $4.6B estimate
2. Zinc: $2.6B, up 37% since 2016 and 1% above BMO's estimate
3. Coal: $3.5B, up 47% since 2016 but 9% below BMO's estimate
4. Nickel: $633M, up 48% since 2016 and in line with BMO's estimate

Glencore indicated "strong performances from metal and minerals (+28%) and energy products (+9%)," added Sterck.

Regarding the company's balance sheet, net debt was $10.7B, down $2.2B from June, Sterck wrote. It came in about 7% lower than BMO's forecast and at the lower end of Glencore's estimated $10-16B range.

Looking to 2018, the miner only reduced guidance for nickel production by 2% and coal production by 3%. Otherwise, overall guidance for production remains unchanged, as it does for marketing. As for cost guidance, Glencore cut it for copper, zinc and nickel but raised it for coal.

BMO Capital has an Outperform rating and a 4.50 per share target price on Glencore, which represents a total potential return of 19%. The stock is currently trading at around 3.94 per share.

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