06.05.14 - 14:00 Uhr
Glencore Xstrata (Price: 319p | Target: 302p | Rec: Reduce)

Q1 production data was generally slightly shy of our estimates, although the key copper division was in line, and we have trimmed some of our FY production numbers, particularly for zinc and nickel. However, following good performance, we have increased the assumed contribution from the trading division slightly. Net, our TP falls by 3p to 302p with FY14E EPS reduced from 35.4p to 31.3p. We remain at Reduce.

* Copper in particular was a strong performer, with output of 382kt (we had estimated 383kt) up 19% yoy following expansions at Mutanda and Ernest Henry. However, own zinc output at 306kt (Investec 368kt) was down 18% yoy due to closing older mines. Nickel output was down yoy 15% at 22kt (Investec 26kt) as mines were placed on care and maintenance, with only 1kt produced from Koniambo and targets being reviewed. Clearly this major asset continues to struggle - a concern particularly in a strengthening nickel market. Consequently we have lowered our FY numbers for nickel and zinc.
* In Energy, own sourced coal production was up 4% yoy to 34.1mt (Investec 36kt) reflecting a recovery from a strike last year at Cerrejon and improvements elsewhere. Oil output in Equatorial Guinea stood at 6,304kbbls (Investec 6,375kbbls) and Chad at 1,067bbls (Investec 1,650kbbls) taking overall output up 37% yoy as production ramps up. Overall agricultural tonnes were broadly in line with our expectations, although there was some variability between the different products.
* The company reports strong performance in marketing during the quarter; we await the interims for a detailed update, and assume US$2.8bn EBITDA out of an FY14E group total of US$14bn.
* Our TP (302p) reflects a combination of NPV, P/E and dividend multiples over a two year period. Key risks are commodity prices and operational issues.

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Analyst: Marc Elliott +44 (0)20 7597 5189

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