Glencore PLC (LON:GLEN) (LSE:GLEN.L) has released its 2016 results to investors. It has reported an adjusted EBITDA of $10.3 billion, which is 18% higher than in 2015. Adjusted EBIT of $3.9 billion is 81% up on 2015’s figure, while a net income pre-significant items figure which has risen 48% to $2 billion is likely to please investors.
Glencore has been able to control costs across its divisions, which is an important reason for its improved profitability in my view. It has invested significant time and energy in reducing costs and according to its CEO, since its IPO in 2011 it has never been so well positioned as it is today. It has repositioned and improved its capital structure, which has reduced net funding by $14.7 billion in the last 18 months. It has generated more than $1.3 billion in cost savings at its industrial assets in 2016.
Further, Glencore’s cash flow coverage ratios have improved. FFO to net debt is now 50%, while net debt to adjusted EBITDA is 1.5x. It has available committed liquidity of $16.7 billion and in my view remains well-diversified by commodity and geography. Its low-cost positions in a range of commodities could allow it to perform relatively well as an investment in my opinion.
In the last 6 months, Glencore has been a better investment than other resources stocks such as BHP Billiton plc (LON:BLT) (LSE:BLT.L), Rio Tinto plc (LON:RIO) (LSE:RIO.L), Tullow Oil plc (LON:TLW) (LSE:TLW.L) and Anglo American plc (LON:AAL) (LSE:AAL.L). BHP Billiton’s shares are 26% higher, Anglo American has risen 48%, Rio Tinto is 41% higher and Tullow Oil’s shares have gained 17%.
In my view, Glencore has investment appeal for the long run. Its financial strength has improved and it now looks set to deliver strong performance in my view. I like its diversity by commodity and geography, which I think gives it an advantage over Rio Tinto and Tullow Oil. I also think it could perform well on a relative basis when compared to shares such as BHP Billiton and Anglo American.