MIDAS SHARING TIPS: Coal can still fuel a wallet
Old King Coal might have been a happy old soul in the nursery rhyme, but being crowned the fossil fuel monarch is rather less rewarding in these climate-conscious times.
That hasn’t stopped analysts from praising Glencore for taking full ownership of a massive Colombian coal mine. The mining and commodities company is paying $ 590million (£ 427million) for two-thirds of Cerrejon it doesn’t already own, buying out its two rivals BHP and Anglo-American. Glencore chooses the arguably more difficult task of running its thermal coal mines while continuing to own them, while BHP and Anglo have completely sold off.
Outgoing CEO Ivan Glasenberg thinks he’s in good spirits. “Taking out the fossil fuel assets and making it someone else’s problem is not the solution and it will not reduce absolute emissions,” he said. “We are confident that we can responsibly manage the decline in our fossil fuel portfolio. ”
Dig deep: mining and commodities company Glencore bought out rivals to own a large coal mine
Glencore has set itself strict emissions targets to become carbon neutral by 2050, which is more ambitious than other mining giants. It plans to deplete its coal mines by the mid-2040s.
The use of thermal coal may be declining in the West, but its global use over the next five to six years is expected to be stable, mainly thanks to demand in Southeast Asia, said Ben Davis, mining analyst. at Liberum.
Barclays analyst Ian Roussow calls the deal “sensitive” because it puts Cerrejon under Glencore’s control, rather than leaving it as a joint venture with responsibilities. Glasenberg believes the deal will pay off in two years, with Roussow saying it will generate “attractive returns” for shareholders without compromising the company’s plans.
So what is left of Glencore once thermal coal is no longer an option for much of the globe? The answer, thankfully, is “the transition metals” that will help make the batteries to store the renewable energy we all hope to power the planet.
Glencore is a major producer of copper, nickel, zinc, vanadium and cobalt. Currently, 36 percent of the business is copper, 34 percent is coal, and 10 to 15 percent is in the transportation of goods around the world. Davis of Liberum believes that Glencore’s commodity basket is more scalable than its competitors, less focused on iron ore and more on copper and other transition metals.
As demand continues to rise for these post-pandemic, many analysts believe Glencore’s stock price will follow. The stock has been on the rise lately, but shares have never returned to the £ 5.30 price they were quoted at in 2011, and stand at £ 3.15. That’s more than double the price they fell to in October 2020 at the height of the pandemic.
RBC Markets analyst Tyler Broda believes they still have a way to go, estimating they could reach £ 3.60, while Barclays’ Roussow has a price target of £ 3.45. Glencore also reinstated its dividend, which it cut at the height of the pandemic. While this is a modest expected payout, ensuring the stock only returns around 2%, Liberum’s Davis says he expects more freebies for shareholders – either in the form of ” a special dividend or a share buyback.
Midas Verdict: Investing in thermal charcoal will raise a few eyebrows at dinner parties. But Glencore is doing its best to deal with environmental responsibilities while providing shareholder value. Clouds are looming on the horizon, including the retirement of the current CEO and the revolt of shareholders over the compensation of his replacement. But the company has a decent presence in the hot commodities sectors and the Cerrejon deal is good for all parties involved. All in all, it’s worth the deep digging for this one.
Negotiated on: Main market Teleprinter: GILLE Contact: 020 7629 3800 or glencore.com
UK Residential REIT ready for stock exchange listing
Buying a property for rent was once lucrative until the government introduced new taxes on second homes and removed the mortgage interest tax break.
That hasn’t stopped investors from being drawn to residential real estate, something the UK Residential REIT (URES) is banking on when it went public later this month. This real estate investment trust focuses on mid-market rental properties in cities outside of London.
Kee Gan, chief investment officer of L1 Capital, the company behind URES is targeting downtown apartments that will generate immediate income, using economies of scale to renovate them and raise rents.
Confidence will not start from scratch. When it floats, it will acquire a seed portfolio of over 1,200 properties and a £ 440million pipeline of investment opportunities from L1 Capital. This seed portfolio has performed well during Covid, with 96% rent collection last year and 95% average occupancy over the past two years.
The objectives of the trust are ambitious. Gan believes he can handle a 5.5 percent dividend yield and 10 percent annual returns – something besieged UK savers dream of. Residential property is generally an illiquid asset, so a trust, in which you buy and sell stocks, is an attractive option. They are also a way to hold property within a pension or Isa.
But there are reasons to be careful. Ryan Hughes of the AJ Bell investment platform points out that many homeowners have already invested heavily in the UK property market. Thus, an investment in rental housing could overexpose some.
Midas Verdict: Exposing yourself to this end of the residential rental market as an individual investor is not easy, but it can be lucrative. L1 Capital has a decent track record. Its first two real estate funds generated double-digit annual rates of return last year. Those interested in acquiring stocks as listed by the companies can do so through brokers such as AJ Bell, Hargreaves Lansdown and Interactive Investor.
To register on: Main market Teleprinter: URE Contact: ukresidentialreit.com or 020 3871 2947
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