The Glencore share price continues to surge, despite the overhang of a $1.5bn fine the firm is set to pay out in compensation for a series of bribes that has boosted recent profits. With the company primed to continue to take advantage of hikes in energy prices, its stock could maintain a strong growth trajectory.
The Glencore [GLEN.L] share price seems bulletproof right now. Despite being under fire after a high-profile corruption and market manipulation case last week, shares in the natural resource trading company have gained 15.6% over the past two weeks to close Friday 27 May at 526.2p.
Glencore has previously made the headlines after investigations into suspicions of bribery within the company in 2019 and 2021. But what of the investment case? Rising commodity prices and strong profits mean the fundamentals are in good health, though investors may have to hold their noses before buying.
What’s happened?
Glencore is set to pay $1.5bn in fines and compensation to settle probes into bribery and market manipulation in the UK, US and Brazil.
Manhattan US Attorney Damian Williams said that the company had paid over $100m in bribes to government members in Brazil, Nigeria, the Democratic Republic of the Congo and Venezuela. US Court filings show that Glencore and its subsidiaries paid out $52m to bribe Nigerian offices via intermediaries, which resulted in profits of $124m.
Almost simultaneously, at a hearing in London a Glencore lawyer was overheard saying that Glencore Energy UK would plead guilty to seven counts of bribery and corruption, as reported by Bloomberg.
“We acknowledge the misconduct identified in these investigations and have cooperated with the authorities,” CEO Gary Nagle said in a statement. “This type of behavior has no place in Glencore, and the board, management team and I are very clear about the culture that we want and our commitment to be a responsible and ethical operator wherever we work.”
How has the news hit Glencore shares?
A $1.5bn antitrust fine might be one of the largest ever, but it is small fry compared with the $17bn the company is expected to earn this year.
Glencore’s share price jumped after the news broke last week, suggesting that investors are hoping the company can now get past its legal woes. Over the past month shares in Glencore are up 8.9% and year to date, the stock is up over 40%.
As one of the largest commodity traders in the world, the company is willing to deal with materials and countries that others might not. Not only does Glencore trade in metals like copper and gold, but it is also one of the world’s biggest oil traders. Controversially, it has also held on to its coal assets, despite an industry-wide purge of the fossil fuel.
Glencore’s margins have seen huge expansion over the past year and the size of the fine seems trifling given the sheer amount the company hauls in — revenues in 2021 amounted to $150.7bn.
In a 13-page investor update published the same day as it announced it would be settling with various regulators, Glencore said it had appointed new board members, revamped its code of conduct and had invested in anti-bribery and market conduct training for its employees.
There’s also no sign that either the demand for or prices of energy are set to decrease, at least over the next year or so, which should benefit Glencore’s stock price.
Do analysts rate Glencore’s share price?
Analysts at Barclays upped their target price to 770p from 730p on 25 May, maintaining their ‘overweight’ rating on the stock. At the start of the month, Morgan Stanley trimmed its price target to 623p to 620p.
The 17 analysts offering 12-month price targets for Glencore have a median target of 586.69p according to the FT, with a high estimate of 766.11p, and a low estimate of 467.61p. The median estimate represents a potential upside of 13% from last week’s close at 145.00p. The company also has a positive outlook overall from analysts following the stock with four ‘buy’ and 14 ‘outperform’ recommendations, along with three ‘hold’ ratings.
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