Weekly Earnings Outlook

Update 20 November

Glencore’s Acquisition of Elk Valley Resources: A Seismic Shift in the Steelmaking Coal Industry

In a move that is expected to reshape the global steelmaking coal market, Glencore, the world’s largest commodity trader, has agreed to acquire a 77% stake in Elk Valley Resources (EVR), Teck Resources’ steelmaking coal business, for a staggering $6.9 billion in cash.

EVR, with its vast coal mines in British Columbia, Canada, is a prized asset renowned for its high-quality coal and consistent profitability. Glencore’s acquisition of EVR is not merely about expanding its coal portfolio; it is about consolidating market power and capturing a greater share of the global steelmaking coal pie. The implications of this acquisition are far-reaching. Industry experts predict a consolidation wave, with smaller players struggling to compete against the formidable Glencore-EVR alliance. Coal prices are also expected to rise as Glencore flexes its newfound market dominance. However, this price hike could also lead to increased scrutiny of the environmental impact of steelmaking coal, an industry already under the microscope.

Compagnie Financiere Richemont SA (JSE: CFR)

Richemont, a global leader in the luxury goods industry, has delivered a resilient performance in the first half of 2023. With sales reaching €10.2 billion, Richemont witnessed a 6% increase compared to last year’s corresponding period, driven by robust demand from the Asia Pacific region and its esteemed Jewellery Maisons. This growth momentum was particularly evident in Cartier and Van Cleef & Arpels, two of Richemont’s most iconic brands.

While impacted by adverse foreign exchange movements, operating profit from continuing operations still managed to reach €2.7 billion, reflecting the Group’s effective cost management and operational efficiency. This resilience was further underscored by a 2% rise in profit for the period from continuing operations, reaching €2.2 billion, primarily due to lower net finance costs.

Richemont’s financial position remains solid, with a net cash position of €5.8 billion as of 30 September 2023, demonstrating the Group’s strong liquidity and financial strength.

Tencent Holdings Ltd (HKG: 0700)

Tencent, a major investment of Naspers and Prosus, delivered a strong performance in the third quarter of 2023, defying broader economic headwinds. The company’s total revenue climbed 10% year-over-year (YoY) to RMB154.6 billion, fueled by robust growth in its advertising, international games, and fintech businesses. Advertising revenue surged 23% YoY to RMB26.6 billion, while international games revenue leaped 12% YoY to RMB50.3 billion. The fintech and business services segment also contributed significantly, expanding 12% YoY to RMB50.3 billion.

Tencent’s financial performance was not only driven by revenue growth but also by improved cost efficiency. The company’s gross profit margin (GPM) expanded 5.2 percentage points YoY to 49.5%, highlighting the effectiveness of its cost management efforts. This translated into a 39% YoY surge in non-IFRS net income to RMB44.9 billion.

Sources: YahooFinance; Reuters; Financial Post; Bloomberg; The Wall Street Journal

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