Glencore undervalued on the stock market

Glencore, the world's largest commodity trader whose roots go back to the legendary oil and metals merchant Marc Rich, had a bad year in 2018 – a annus horribilis or a bad year as my Swiss friends have said. Shares are down 20 percent. The Department of Justice invests corruption and money laundering in three countries where corruption is a form of art, even by Third World standards – Nigeria, Congo (legendary Conrad of the Darkness) and Venezuela. Did Glencore cry uncle in Washington? Not at all. CEO Ivan Glasenberg, who owns eight percent of the Baer-based trader in Switzerland, has announced stock repurchases of $ 1 billion.

Glencore's shares have been losing since it was floated on the stock market centuries ago in a distant galaxy. the London Stock Exchange at 526 pence. Glencore is trading at just eight times the profits now, a huge discount for BHP or Rio Tinto. However, I am convinced that despite the legal sword of Damocles exercised by the courts, his actions are grossly undervalued and promise me a total potential return of 25%. Why?

First, the $ 1 billion stock repurchase eliminates transaction risk. The CEO of Glencore is a serial trader and the financial markets have long speculated that Bunge was his next target. However, Bunge's shares have now fallen to their lowest level in six months, removing their acquisition premium. The smart money now believes that an offer from Glencore simply will not happen – at least for the moment.

Second, the buyback of shares means that the company's net debt is close to its $ 16 billion ceiling. This suggests that Metal Men do not plan another major affair. This is positive for shareholders.

Third, Jeff Currie of Goldman Sachs believes that investors can expect a 10% return on commodities. Jeff's views have been an badet to my strategic and tactical moves in investing in natural resources for more than a decade. If Jeff is right, the stars are aligned so that Glencore's actions rise higher.

Four, Glencore has a fortress record in the global commodities trade. In 2017, Ivan Glasenberg boasted that the company could even afford a $ 20 billion dividend after a resurgence of public sales in London.

Five, Glencore is today the second largest gas and refined products merchant in the world. However, one of the reasons why many US fund managers sell stocks is because it has started paying royalties to billionaire Dan Gertler, who made his fortune in diamond, copper and cobalt with his links to Kabila. regime in Kinshasa. Gertler has been subject to blocking sanctions by the United States and it is unwise to challenge Uncle Sam's global decree at the time of Trump.

Gertler boasts of getting a Nobel Prize for his business in Congo – but the world The Bank and the IMF are not in agreement. Yet Gertler was Glencore's partner in the Democratic Republic of Congo, an African state where even Chinese state-owned companies found it impossible to make money. Glencore's dividends to shareholders are fully guaranteed, in the range of $ 2.8 billion to $ 2.9 billion. The timing of the stock repurchase announcement tells me that Glencore's management believes that the shares are undervalued and that the balance sheet can bear all Washington's punitive legal fines. In my opinion, the risk / return calculation is skewed in my favor as a new silver shareholder

The world's best mining badysts expect Glencore to earn $ 54 billion – again, 54 billion in Ebitda over the next three years. There is no doubt in my mind that this means a tsunami of cash for shareholders in the next three years as long as there will be no black plague on the global commodities market – although this sector is, to paraphrase the charming words of Don Rumsfeld his war performance in Iraq, shit comes!

Glencore has an exposure to the basket of commodities ideal in this macro environment – copper, zinc, iron ore, thermal coal and energy. I concede that Congo's activity is one of the main reasons why stocks are trading at a Cinderella valuation index. Congo represents $ 10 billion in badets and $ 3 billion in Ebitda, unlike Nigeria and Venezuela, which do not even generate 1% of revenues. Glencore is a commercial giant who can generate $ 10 billion in free cash flow. Unless Justice inflicts criminal charges, Glencore's actions should rise higher.

The author is a global equity strategist and a fund manager. He can be contacted at [email protected]