It’s fair to say that Glencore (LSE: GLEN) has surpassed all expectations this year. At the end of 2015, it was close to being left for dead by many of its stakeholders. Shares in the company had lost three-quarters of their value over the year, and many analysts were openly claiming that Glencore could collapse into bankruptcy within 12 months.
However, 12 months on and the picture couldn’t be more different. Year-to-date shares in the company have rallied by 230%, and management is considering restarting the group’s dividend payout after cutting it to conserve cash last year. What’s more, after a year of asset disposals, capital raisings, and inventory liquidation, Glencore is starting to expand once again.
It emerged yesterday that the group has acquired a 19.5% stake in Russian oil producer Rosneft for €10.2bn. It financed the deal with the help of its largest shareholder the Qatari sovereign wealth fund. The buyers will share a 19.5% stake in state-run Rosneft PJSC, which pumps almost 5m barrels a day. There’s no denying this is a transformational deal. A 19.5% share of Rosneft effectively gives the company a production share of 1m barrels of oil per day. Add this to the company’s existing production of several hundred thousand barrels of oil per day, and Glencore is now one of the world’s largest oil producers.
A dramatic return
Such a dramatic return to dealmaking indicates that management is optimistic about the group’s future. Even throughout last year’s turbulence, the management has always seemed to have its finger on the pulse and such an aggressive transformation of the business over the past 12 months shows Glencore’s top team is extremely committed to the firm.
This is undoubtedly good news for shareholders and could power further gains in the firm’s shares for 2017.
While it’s extremely unlikely the shares will double again over the next 12 months, I wouldn’t rule out further gains as the group benefits from higher commodity prices, a lower debt pile and its new stake in Rosneft. City analysts are forecasting that earnings per share will expand by 83% next year to 14.5p. Based on these figures the shares are trading at a forward P/E of 19.8. It’s highly likely that as 2017 progresses, these forecasts will be revised higher.
Indeed, these figures exclude any contribution from Rosneft, and after this deal, Glencore’s earnings are now highly sensitive to the price of oil so as OPEC’s production cut kicks in, the company’s earnings will get an oil boost.
The bottom line
So overall, Glencore’s shares may not have enough gas in the tank to double again next year, but double-digit gains are certainly possible as the company completes its recovery and re-charts its course for growth.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.