Brokers' view: Midas

Midas insist that ‘The over-hyped Glencore International IPO has been a failure’. However, Midas asks, ‘The question now is “does that present an opportunity?”’

Glencore has historically been a successful company, growing revenues at a CAGR of 5.5 per cent over the last five years, resulting in a CAGR for basic EPS of 10 per cent.

The valuation for Glencore looks attractive when compared against other diversified commodity trading companies such as Noble Group Limited. Glencore is trading on an EV/EBITDA of 5.6x compared to 10.9x for Noble Group and also compares favorably to the ten-year average EV/EBITDA multiple of metals and mining companies of 8.45x. In addition, the P/B (price to book) of Glencore comes in at 1.5 compared to Nobel Group’s 2.5.

This success is unlikely to change due to commodity prices tracking higher towards the end of the year as demand continues to grow. As they have proved over the years, Glencore know how to exploit this.

Kalahari dreams
Keeping on the commodities theme, Midas believe readers should keep a watchful eye on Kalahari Mineral Resources the owner of a 42 per cent stake in uranium miner, Extract Resources and recently the subject
of a takeover offer at 290p.

China Guangdong Nuclear Power Holding Corporation have now walked away from the bid but Midas believes they will be back in three months’ time with a revised bid, unless they are beaten to it by the likes of Rio Tinto.

The shares are currently trading at 228.5p and we would expect a takeover at no less than 270p in the coming months, offering an 18 per cent upside.