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He Glencore (LSE:GLEN) share price lost some ground on the morning of February 21 as fiscal year results showed declines across the board.
Revenue fell 15%, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell 50% and trailing earnings per share plunged 74%.
It might be a surprise to see that the share price fell only a couple of percent. But these figures were mostly expected. And although the stock has fallen in the past year, we're still looking at a 22% gain over five years.
Valuation
Even taking into account the difficult year the commodities business has had, I think Glencore's share price looks too low.
Broker forecasts put the stock at a price-to-earnings (P/E) ratio of around 10 over the next two years. It can be difficult to understand the P/E in a cyclical business like this.
What always made Glencore stand out for me is its dividends. But they simply took a dip, as the company cut its 2023 payment to help deal with debt.
And debt risk is always in the back of my mind. Glencore just reported year-end net debt of $4.9 billion, up from $75 million a year earlier.
Debt strategy
Still, compared to earnings, I don't think it's a big concern. We saw a net debt/adjusted EBITDA ratio of just 0.29. That seems little for the sector, after the year of weak global demand we just had.
And in fact, I like to see a board that focuses more on reducing debt than paying dividends. I think Glencore understands this well.
At the end of the day, anyone who invests in this sector has to be sure of one thing. It is not a stable business, as National Network for example, that still generates predictable dividends.
No, mining dividends are among the most volatile on the FTSE. And as long-term investors, we have to face that.
Cyclical risk
Dividend forecasts have pretty much gone out the window at this point.
But if we are emerging from the global recession, it looks like 2024 could mark the end of the earnings cycle. After that, with a return to earnings growth, you could see Glencore's dividend rise again.
Now, I don't really want to put too much effort into trying to find the bottom of the current cycle. Many things can go wrong when trying to do that.
And Glencore shares could face declines in 2024 and 2025, especially if profits are weaker than expected in the coming years.
Cheap stocks?
Turning to the prospect of future cash returns, CEO Gary Nagle said: “Although there are no additional returns at this time, the business is expected to generate a lot of cash at current spot commodity prices (illustrative spot annualized free cash flow generation of approximately $5.2 billion from a Adjusted EBITDA of approximately $15.0 billion). , which bodes well for top-up returns to resume in the future.“
I think Glencore is definitely a long-term stock that I should consider buying for my 2024 ISA.
