It is time to stop buying Glencore PLC (LSE:GLEN), according to analysts at UBS, who today downgraded the miner and commodities trader to ‘neutral’ even though its final results are expected to see a focus on cash returns.
Shares in the FTSE 100-listed commodities giant are up 30% since the beginning of 2022, outperforming its mining sector rivals 20%.
But analysts at UBS point to a weaker near-term outlook for thermal coal and cobalt prices which the Swiss bank’s team reckons leads to a less attractive risk-versus-reward profile.
Nevertheless, the bank added that Glencore is still deemed to be “preferred” compared to its peers due to its "favourable" commodity mix and near-term cashflows.
At Glencore's full year results, UBS predicted management will pledge some US$7.5bn of cash returns to shareholders comprising US$5bn of dividends and US$2.5bn of share buy-backs.
Operationally, the bank reckons Glencore may lower cost guidance for copper and adjust for coal.
The consensus forecast is for underlying earnings (EBITDA) of US$34.4bn.
“Glencore remains well positioned vs peers and offers superior cash returns, but in our view the change in outlook for gas/coal pricing limits the magnitude of potential upside,” analyst Myles Allsop said in a note.
His ‘neutral’ rating comes with a 560p twelve-month price target (current price: 517p).
Separately, Glencore was downgraded by Jefferies due to warmer weather heading the way of the Northern Hemisphere.
“The warm winter in the Northern Hemisphere and the associated collapse in natural gas prices has helped Europe avoid an energy crisis and has been a dis-inflationary factor in the global economy.
“However, the weakness in gas prices is fundamentally problematic for thermal coal,” the US bank said in a note.
A buy recommendation was retained, but price forecasts, earnings estimates and target prices for all the coal-levered miners have been cut.
Glencore’s target is now 700p from 750p, said Jefferies.
-- adds Jefferies comment --.