[miningmx.com] — GLENCORE, the world’s largest commodity trader, posted a 40% jump in 2010 net profit on Thursday, strengthening its hand for a possible stock market listing that could value it at about $60bn.
Net profit rose to $3.8bn, boosted by higher prices for metals and agricultural products, while revenue rose 36%to $145bn.
Company executives spent two days in London this week telling analysts about its business ahead of what could be Britain’s biggest initial public offering (IPO) this year.
Sources familiar with privately held Glencore’s plans have said it could float 20 percent or more of its stock, possibly split between London and Hong Kong, raising up to $16bn.
“These strong results will benefit any theoretical or public value of the currently private Swiss group,” said Miriam Hehir, director of credit research at RBC Capital Markets.
A $60 billion valuation put on it by one analyst would make Glencore about the same size as Barclays Bank, T-Mobile owner Deutsche Telekom and U.S. carmaker Ford.
“I suppose the consensus valuation at the moment is probably $50 to $60 billion. But as every quarter passes by and metal prices keep going up, the mark-to-market value of those industrial holdings are shooting up,” said Henri Alexaline, credit analyst at BNP Paribas.
“This range could pretty easily move to $60bn to $70bn or $60bn to $80bn in terms of valuation. The goal posts are moving,” he said.
Estimates of the group’s value have been scarce due to the unique combination of businesses, making it difficult for analysts to assess its worth.
Hehir said a $60bn estimate could be somewhat conservative, given typical sector multiples and core profit of $6.2bn last year.
“Glencore’s production growth initiatives, primarily in coal, copper, gold and oil, could progressively enhance its industrial income going forwards,” she said.
NO IPO UPDATE
The company, owned by its 500-odd senior traders and other partners, did not give an update on plans for a possible IPO or an outlook for commodity prices in a two-page statement sent to media. A longer report released to bondholders also said nothing new about an IPO or any plans relating to miner Xstrata, in which Glencore is the biggest shareholder.
Speculation continues about a merger with Xstrata, though major Xstrata investors have said they are wary of a link-up ahead of an IPO due to valuation difficulties.
“We see a combination of Glencore and Xstrata as attractive, and while this could be achieved without Glencore listing, many Xstrata shareholders may prefer to see an external valuation of Glencore ahead of any potential combination,” said Hehir.
Glencore’s biggest earnings contribution came from its industrial assets, where earnings before interest and tax surged 72% on stronger metals prices and improving market sentiment in industries such as automotives and construction.
Glencore owns or partially owns mines, refineries, smelters and grain silos around the world. These industrial assets accounted for 56 percent of the group’s earnings for the year.
Its biggest single investment is its 34% stake in Xstrata, worth about $23bn. Glencore also trades a wide range of commodities and raw materials from its own projects as well as from third-party producers. Earnings from these activities rose 47%.
Net debt increased to $14.8bn from $10.2bn a year earlier, but fell $400m from the third quarter.
COMPARISONS
Strong commodity prices, led by demand from key consumer China, have resulted in healthy profits for many miners.
“We’re going back really to the peak earnings level we had in 2006 and 2007,” said Alexaline. “It’s great timing ahead of the IPO, with very supportive trends.” The results, which are adjusted for unspecified exceptional items, indicate Glencore is running an operating margin of 3.6%, which is a fraction of the 30 percent margin enjoyed by Anglo American AA.L and 37% at BHP Billiton.
However, the conglomerate nature of Glencore’s operations means it has no direct rivals and makes comparisons tricky.
It is also difficult to measure Glencore’s success last year with its performance in the last commodities boom.
“Glencore’s business is much larger and has a higher exposure to industrial activities than was the case in past commodity cycles,” Hehir said.
Glencore was bullish on the outlook for the asset class, expecting last year’s buoyant trends based on growth in emerging nations such as China to persist this year.
Speculation that a Glencore listing could come before Easter, which falls at the end of April, was premature, however, a source told Reuters earlier this week.
“We continue to see an IPO of Glencore as a likely option, and our best guess at timing is during May,” said Hehir on Thursday.
“Ahead of this, we could see Glencore sell or spin off the gold assets owned by its 50.7%-owned subsidiary, Kazzinc. Such an action would enhance transparency and be helpful for any investors considering the valuation of Glencore itself.”
