Glencore 0805.HK 805 HK BASIC MATERIALS EQUITY RESEARCH May 31, 2011 Initiating at NEUTRAL with TP of HKD70.40 Rating Starts at Neutral Entrepreneurialism fully priced Target price HKD 70.40 Starts at70.40 Closing price HKD 67.40 May 30, 2011 Potential upside +4.5% Action/Valuation: Expensive relative to mining peers; NEUTRAL Anchor themes Glencore is evolving from a trading house whose mining assets principally We expect the mining sector to served to feed its marketing business into one whose mining assets outperform in 2011, with become the key driver of group earnings. Although we find Glencore's thermal coal being our management to be the most entrepreneurial team in the sector, we think preferred commodity pick. valuations are expensive relative to mining peers. Our HKD70.40 TP represents a 10% holding company discount to our SOTP NPV valuation. Nomura vs consensus Coverage on the street is Mining assets: higher volume growth, but with higher risk and costs currently sparse. Excluding Xstrata, we estimate an attributable copper equivalent CAGR for Glencore of 7.5% over 2011-2015E (vs an average of 5.2% for the Research analysts diversified miners). Glencore’s high growth is partly offset by higher geographical risk and a higher cost profile, with average costs mostly in Singapore Basic Materials the third quartile of industry cost curves. Tanuj Shori - NSL
[email protected] A high-quality and counter-cyclical marketing business +65 6433 6981 Glencore’s marketing business has dominant market shares, high barriers to entry and counter-cyclical cash generation, and we believe it should European Metals & Mining trade in line with or at a small discount to Noble (because of Noble’s Paul Cliff - NI plc
[email protected] greater exposure to agriculture, which tends to be less cyclical, and its +44 20 7102 4349 faster earnings growth, offset to some extent by Glencore’s higher RoCE).