Glencore well-placed to ride a downturn says Morgan Stanley
Glencore International, which held a US$10 billion initial public offering (IPO) in May, has been named a "top pick" at Morgan Stanley.
The world's largest listed commodities trader will prove more resilient in a downturn, analysts said.
Based in Switzerland, Glencore has a 60 per cent global market share in the internationally tradeable zinc market and half of the tradeable copper market. It has earned comparisons with the investment giant Goldman Sachs.
Glencore is a leader in sourcing, marketing and trading commodities and employs thousands of traders, lawyers, accountants and other staff in 40 countries to provide real-time market and political intelligence on a wide range of commodities, from oil markets to sugar.
"The market is not pricing in its marketing and industrial businesses," Morgan Stanley's report said. "A global footprint with sizeable logistic capabilities allows Glencore to identify opportunities and benefit from arbitrage situations that arise between geographies and different qualities of the same commodity."
Glencore sold shares at 530 pence each in London and Hong Kong in the world's biggest IPO this year.
Prior to the offering, the management indicated the listing would give it the financial flexibility to "capitalise on long-term opportunities". "Glencore's ability to execute opportunistic deals is under-appreciated by the market," the report said. For the short to medium term it was reported that Glencore, next to increasing its stake in Kazzinc, a copper subsidiary, was considering a $19bn takeover bid for Eurasian Natural Resources.
Glencore is expected to spin off its $5bn of gold assets in the next year or so, which would be a catalyst for the stock, the report said.
Commodities in the three months to September had the worst quarter since 2008, plummeting on concerns there may be another global downturn.
Glencore reported a 57 per cent increase in profits for the first half of the year to $2.45bn.
Aabar Investments, based in Abu Dhabi, invested $1bn in the Glencore IPO, making it the largest cornerstone investor.
Published: October 6, 2011 04:00 AM