Glencore ‘Could Deliver Self-Help Strategy to Unlock Value’

Goldman Sachs reiterated its Buy rating on Glencore (LON: GLEN) in a note last week but lowered its price target to 420p from 500p, following the company’s preliminary 2024 results. 

The investment bank cited concerns over higher capital expenditures and flat production growth, despite Glencore maintaining that the stock remains undervalued.

Goldman said that while a “long-awaited buyback was announced,” the $1 billion size fell short of its $2 billion forecast. 

They noted that management expects to fund the programme with proceeds from the Viterra sale, but cash flow constraints prevented a larger capital return. 

Goldman Sachs noted, “The underlying business failed to generate sufficient cash flow to increase the buyback, as capex stepped up and coal price discounts widened in 2H’24.”

Glencore’s industrial capex rose from $4 billion in 2020 to $6.4 billion in 2024, yet production growth remains flat as rising costs offset asset depreciation and mine closures, said the bank. 

Management expects copper production to recover to 1Mt by 2028, but Goldman Sachs highlighted that capex continues to rise while returns remain uncertain.

The company hinted at a review of its coal strategy, potentially to be announced in Q1. Goldman Sachs believes Glencore “could deliver a self-help strategy to unlock value”, including monetising non-core assets and returning proceeds to shareholders through additional buybacks.

Given ongoing cost pressures and uncertainty over capital returns, Goldman Sachs has cut its medium-term EBITDA estimates by 6-7%. 

The firm added that it awaits clarity on Glencore’s future strategy in a challenging pricing environment.