It might surprise some to know that Glencore (LSE:GLEN) is the worst-performing FTSE 100 stock over the last year. The Glencore share price is down 46% over this period, based on not one but a multitude of different factors. After hitting 52-week lows last month, it’s worth considering whether this is fast becoming a value stock pick.
Problems galore
One place to start is with coal. The commodity is a significant contributor to Glencore’s earnings. In 2024, the average realised price for energy coal fell to $100.6 per tonne, down from $136.7 per tonne in 2023. When it released the annual report in February, it said adjusted EBITDA dropped 16% to $14.4bn, with a good portion of this financial hit coming from lower coal prices.
Another concern for investors has come from increased debt due to acquisitions. In late 2023, Glencore acquired a 77% stake in Elk Valley Resources, a steelmaking coal business, for $7bn. This acquisition, along with $6.7bn in capital expenditures, more than doubled the company’s net debt to $11.2bn by the end of last year, up from $4.9bn the previous year.
Finally, the economic slowdown in China, along with the recent trade bust-up with the US, hasn’t helped. China is a major consumer of commodities, so Glencore suffers when it doesn’t perform well as a country. Lower demand indirectly means lower revenue for the FTSE 100 giant.
Looking on the bright side
Some of the problems over the past year can be solved. For example, the higher debt levels. In the annual report, the company spoke of “healthy cash generation, along with $1.8bn of net working capital inflows”. This leads me to conclude that the company isn’t desperate for debt funding to survive.
As for commodity prices and production levels, the Q1 update noted that management made a “recent proactive decision to reduce Cerrejón (coal) volumes, in support of rebalancing this market.” By reducing the supply, it should help to support coal prices.
Let’s not forget that commodity prices are always volatile. It wouldn’t surprise me if we fast-forward a year and coal prices are higher than they are now. Higher Chinese demand could support this, especially with relations with the US improving in recent weeks.
Further steep drop unlikely
The business is currently loss-making, so I can’t use the price-to-earnings ratio to get a feel for the valuation. However, I can compare the market cap to the enterprise value. The enterprise value is an alternative way of measuring the value of a firm. It should be similar to the market cap. Currently, the Glencore market cap is $43.45bn. The enterprise value is $77bn.
To me, that’s one indication that shows the stock could be undervalued. Of course, this needs to be taken with other metrics as well before making a decision. But I think it shows that the Glencore share price may be unlikely to fall much further, as value investors will likely start to emerge and buy. Therefore, it could be an idea for other investors to research as well.
