Glencore’s Spectacular 2022 Result Driven by High Coal Prices, Marketing

Glencore’s 2022 result was spectacular. Adjusted net profit after tax was USD 18.9 billion, or USD 1.44 per share, up from USD 9.1 billion in 2021. Adjusted EBITDA rose 60%, to USD 34.1 billion, 1% lower than our estimate. The USD 12.8 billion increase in EBITDA was driven by Glencore’s industrial division (up USD 10.2 billion) as thermal coal prices surged higher in 2022 on rising concerns over energy security due to the war in Ukraine and sanctions imposed on Russia. The company’s purchase of the remaining two thirds of its Cerrejon coal mine in early 2022 also helped. Tailwinds from higher sales volumes and foreign exchange were more than offset by higher unit costs due to increased energy, labour, and other input costs. Marketing EBITDA of USD 6.8 billion, up USD 2.6 billion, was also impressive, driven by very high commodity price volatility due to supply issues and trade disruptions. For context, Glencore’s long-term guidance for annual marketing EBITDA is around USD 2.5 to 3.5 billion.

We reduce our fair value estimate for no-moat Glencore to GBX 600 per share, down from GBX 650, driven by lower assumed near-term thermal coal prices. We now assume thermal coal averages USD 190 per metric ton from 2023 to 2025, down from USD 270, reflecting a lower futures curve. The shares trade about a 15% discount to fair value, which we think is likely due to some investor aversion to coal. Despite a USD 10.8 billion increase in working capital driven by its marketing division due to higher prices along with volatility in commodity markets, Glencore’s balance sheet remains strong, essentially all of the USD 27.5 billion net debt at end December 2022 is funding secured by highly liquid inventories. It will pay a USD 0.40 per share dividend plus a USD 0.04 special dividend, with half of each to be paid in June and the remainder in September. Glencore will also repurchase an additional USD 1.2 billion in shares, which we think will be marginally dilutive at current prices.