Glencore’s rollercoaster ride is continuing, as continuing worries about its debt levels send its shares lower again.
With London copper prices edging lower and a broker downgrade of its price target adding to the pressure, the company is currently down 1.45p to 122.55p. Its shares have lost more than half of their value this year on concerns about its borrowings, although a statement last week from the company designed to ease these worries has seen them edge off their lowest levels. Canaccord Genuity has kept its speculative buy rating on the business but cut its target price from 220p to 190p to reflect lower commodity prices. It said:
Even after removing readily marketable inventories from net debt, Glencore carries mid- year net debt of US$29.6bn, significantly more than any of its FTSE 100 mining peers. However, a review of statements from Moody’s and S&P demonstrates that the ratings agencies are comfortable leaving Glencore’s investment grade ratings unchanged at BBB/Baa2, particularly given the 7 September announcement. Both agencies have moved to a negative outlook, which seems sensible given the impact on cashflows should commodity prices fall demonstrably lower on a sustained basis. While both agencies note that Glencore will be outside the preferred guidelines for its credit rating they see this as a temporary (around 6-18-month) issue. In its funding factsheet, released 6 October, Glencore outlined the limited impact of a credit rating downgrade.
Given our lower commodity price assumptions, we reduce our target price from 220p to 190p. However, this still leaves upside of over 50% to our target price, and we remain positive on the stock, retaining our Speculative Buy recommendation. There are clearly still potential risks should commodity prices decline further but we believe that the shares have been oversold on debt concerns. Certainly, the ratings agencies don’t seem to be as troubled as some in the equity market; investors should take note of that.
Apart from Glencore other miners are mixed, with Fresnillo up 15.5p at 691.5p after HSBC raised its target price from 760p to 810p. BHP Billiton is 12p better at £11.20 but Anglo American is down 6.6p at 657.9p.
Overall the FTSE 100 has edged lower after its recent gains, down 14.31 points at 6322.04. Investors are cautious ahead of a raft of central bank news, with a rate decision from the Bank of England and minutes from the Bank, the European Central Bank and the Federal Reserve.
At the same time, poor export figures from Germany have revived fears about the eurozone economy, although this also points to further possible stimulus measures from the ECB.
In China the Shanghai composite ended 3% higher after a holiday break.
Among the FTSE 100 fallers are a number of companies whose shares have gone ex-dividend. These include Aviva, down 12.3p at 469.9p, and Kingfisher, 6.9p lower at 351.6p.
