Glencore’s (LSE: GLEN) share price has dropped over a third from its one-year traded high of £4.38. I think it is fortunate not to be down more, given its poor H1 2025 results released on 6 August.
Adjusted earnings before interest, taxes, depreciation, and amortisation fell 14% year on year to $5.430bn (£4.04bn). The net loss attributable to shareholders rose 181% to $655m. Funds from operations dropped 22% to $3.147bn. And net debt soared 30% to $14.471bn.
‘Oh dear, oh dear, oh dear,’ as one of my foreign exchange traders used to mutter when something even more terrible than usual had happened.
It is perhaps apposite to note at this point that the old market adage is not just ‘buy low’. There is no point in doing this if the asset you buy keeps going lower. The full phrase is ‘buy low, sell high’. So I had a look to see if this may apply to Glencore shares at any point in the near future.
Set for a turnaround?
According to CEO Gary Nagle, H1 saw Glencore progress in optimising the business and positioning for further value-accretive growth.
One element of this is that it expects to meet revised full-year production guidance targets.
For energy coal, the guidance range has been increased to 90,000-96,000 tonnes, from 87,000-95,000. Glencore sees income from coal as the best way of creating value for shareholders. It also believes this revenue can be used to fund opportunities in its transition metals business, notably steel and copper.
There has been no change in the original 30,000-35,000 tonnes guidance for steelmaking coal. However, Glencore expects this division to be another key driver for growth, especially since its 2024 acquisition of steelmaking coal firm Elk Valley Resources (EVR). This builds on the firm’s plans to expand its carbon steel presence with an eye on China’s renewable energy infrastructure plans.
Copper guidance remains unchanged at 850,000-890,000 tonnes, but plans are to return to one million tonnes of production by 2028. Glencore then plans to add another one million tonnes of output in the following years. Copper remains a key metal in construction and industrial machinery, as well as in the energy transition.
The guidance range for cobalt has tightened on the lower end, to 42,000-45,000 tonnes, from 40,000-45,000. This metal is primarily used in lithium-ion batteries for electric vehicles.
Earnings prospects and share valuation
Earnings are ultimately what power any company’s share price higher over time.
A risk to Glencore’s is any serious downturn in China’s economic prospects, as the world’s biggest commodities buyer. However, the country experienced economic growth of 5.2% in Q2, surpassing analysts’ forecasts of 5.1%.
Moreover, as it stands, analysts forecast that Glencore’s earnings will grow a whopping 59% each year to end-2027!
Discounted cash flow modelling pinpoints where any firm’s stock price should trade, based on cash flow forecasts or the underlying business. And it shows Glencore’s shares are now 30% undervalued at their current £2.93 price. Therefore, their fair value is £4.19.
I already own other commodities sector stocks, so buying another would unbalance my portfolio. However, given its extremely strong earnings potential, I think Glencore is well worth the consideration of investors whose portfolios it suits.
