Glencore: is the IPO over-valued?

Saturday, May 28 2011 by
Glencore is the IPO overvalued

When such a large scale IPO hits the market, there are some concerns as whether this is a sign of the commodity cycle peaking. The Glencore IPO is the largest since General Motors sold shares in November, and will give Glencore a value of $61 billion if priced at the midpoint of its offer range. There are signs of market over-heating with the IPO demand having been enough to sell the shares on offer in Glencore more than twice over. To put things in relative perspective: a valuation of as much as $60 billion would place Glencore within $10 billion of Anglo American (LON:AAL) , the world’s sixth- largest mining company by market value, and ahead of Morgan Stanley (NYSE:MS), one of the biggest commodity traders on Wall Street.

Glencore (LON:GLEN) has been a private-run company and a lucrative operation and would expect to have more market intelligence than most others. In the short term I wouldn’t be surprised if we see a market correction/ pull-back but there is a long term growth story here. 

Note: London listed shares are expected to be listed in the 480-580p price range.


1. Glencore is a good, diversified business. Not only are they continuing to expand their traditional commodities trading business, they are also investing in upstream business. That is where it will bring in value for investors long term. Going forward, Glencore should benefit from global economic recovery. 

2. To be pricing Glencore over $55 billion seems way out of line, I would not buy that. Under $50 billion it may be worth a bid, but even then there’s the outlook consideration for commodities. I’m favourably biased towards commodities but increasingly I am taking a cautious stance especially given developments in China.

3. I believe one will be able buy Glencore cheaper once listed. It is way below benchmark allocation because we already own the likes of Xstrata… If we price Glencore at this rate, we by the same hand are underpricing Xstrata. 

The commodities sector is peaking and toppy, and the timing of this flotation is more attractive to Glencore management than it is for investors. 

Note: Glencore’s IPO is good news for all debt holders and particularly good for the strategic investors holding Glencore’s convertible bond as they will almost double their money in a timeframe of…

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AJ Sangha is an active investor and may have financial interests and holdings in any of the topics about which he writes. The views expressed are solely those of Mr Sangha. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations. Readers are urged to seek professional advice before making any investments.

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Glencore plc is an integrated producer and marketer of commodities, such as metals and minerals, energy products, agricultural products and Corporate and other. The Metals and minerals segment is engaged in copper, zinc/lead, nickel, ferroalloys, alumina/aluminum and iron ore production and marketing. It also has interests in industrial assets that include mining, smelting, refining and warehousing operations. Its Energy products segment includes coal mining and oil production operations and investments in strategic handling, storage and freight equipment and facilities. Its Agricultural products segment is supported by controlled and non-controlled storage, handling and processing facilities in various locations, and is focused on grains, oils/oilseeds, cotton and sugar. Its diversified operations consist of over 150 mining and metallurgical, oil production and agricultural assets. more »

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4 Comments on this Article show/hide all

Patrick Roegiers 13th Jun '11 1 of 4

You have to give it to them that they know the markets better than anyone. Ok the valuation is expensive, but they are diversified and the market is too focused on a take-over of Xstrata. Sure they are willing to buy the company, but not for any price. The possible take-over of ERNC proves this. In the long run this stock has great potential. Follow me on Twitter: @PatrickRoegiers

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AJ Sangha 14th Jun '11 2 of 4

In reply to Patrick Roegiers, post #1

We share alot of common thoughts on Glencore, I feel the ENRC talk is speculative as the price will need to be attractive to it's big 3 oligarch shareholder's who collectively own 44% and the 12% shareholding of the Kazakh government meaning that ENRC is effectively in private control. With only less than 20% free float, the question is what price would entice the major shareholders to consider a serious offer from Glencore?

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StrollingMolby 14th Jun '11 3 of 4

Q1 IMS issued this morning:

• Revenues were $ 44.2 billion over the first quarter, up 39% compared to the first quarter 2010.

• Adjusted EBITDA was $ 2.0 billion, up 46% compared to the first quarter 2010.

• Adjusted EBIT was $ 1.8 billion, up 45% compared to the first quarter 2010.

• Glencore net income was $ 1.3 billion, up 47% compared to the first quarter 2010.

• Cash generated by operating activities before working capital for the first quarter was $ 1.5 billion, up 47% compared to the first quarter 2010.

• Funds from operations for the first quarter were $ 1.1 billion, up 42% compared to the first quarter 2010.



Glencore remains well positioned for 2011. Despite the recent commodity price volatility, the Directors believe that underlying fundamentals across many of our key commodities are supportive and that economic activity and demand for commodities remains healthy. In addition, Glencore continues to focus on the many production expansion projects underway across its industrial asset portfolio. These are expected to result in increased production capacity for the balance of 2011 and beyond, and the transform-ation to and establishment of many high-quality, large-scale, long-life and low cost positioned assets. As previously guided, the Directors intend to declare an interim dividend of $ 350 million on 25 August 2011 concurrent with the publication of the interim results for the six months ended 30 June 2011.

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AJ Sangha 14th Jun '11 4 of 4

Glencore will have a crucial week this week as its price stabilisation period comes to an end.

Morgan Stanley, the stabilisation manager has aided in keeping Glencore shares trading within a narrow band meaning if the price dips, the stabilisation manager can buy back the stake in the open market to support the price. If not, the shares will continue to be traded as normal.

There is only a small free float of Glencore shares, circa 15% of the company, meaning that the share price could experience sharp movements and the end of stabilisation could signal a period of price weakness.

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About AJ Sangha

AJ Sangha

AJ Sangha is a ACMA and CGMA qualified accountant and has an Associate of Chartered Securities and Investment Institute (ACSI) designation, holding certification in Investment Management (IMC), Islamic Finance (IFQ). AJ also has been awarded level 1 of the prestigious Certified Hedge Fund Professional (CHP) designation.AJ is a specialist in the fields of business planning, capital raising, and new venture development and has solid grounding in commercial business discipline as well as being technically and financially versed with over 15 years of experience having worked both with big US blue chip corporate names as well as ‘Ultra High Net Worth’ individuals. AJ’s experience extends into the appreciation of the “finance raise” mechanism in the listed and private equity arena. AJ Sangha is an active investor and may have financial interests and holdings in any of the topics about which he writes. The views expressed are solely those of Mr Sangha. This material is not intended to provide, and should not be relied upon for, investment advice or recommendations. Readers are urged to seek professional advice before making any investments. more »

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