Morning Note: Market news and updates from Glencore and Vonovia.

Market News

President Trump said he’d impose increased tariffs on countries buying energy from Russia. He pointed out to India where he would raise rates “very substantially over the next 24 hours”, noting that levies on semiconductor and pharmaceutical imports would be announced within the next week or so. In contrast, Trump said he was very close to a deal with China to extend a trade truce.

Gold has firmed to $3,375 an ounce as a soft ISM Services PMI for July showed near-stagnant growth, falling employment, and rising price pressures, adding to recent signs of a cooling labour market after a weaker payrolls report. The poor data reinforced market bets that the Fed could cut rates twice before year-end, with the first move potentially coming as soon as September. The 10-year Treasury currently yields 4.23%.

European Central Bank Governing Council member Holzmann sees no reason to cut rates again. He pointed out that the ECB should wait and see what economic developments arise, particularly outside Europe. The next Governing Council meeting is scheduled for 10-11 September.

US equities slipped last night – S&P 500 (+0.5%); Nasdaq (-0.7%) – although they are currently expected to open higher this afternoon. In Asia this morning, markets were firm: Nikkei 225 (+0.6%); Hang Seng (+0.2%); Shanghai Composite (+0.5%). Japanese carmakers gained on optimism the country will be able to secure lower auto tariffs in negotiations with the US. The yen rose after a ruling party lawmaker called for the BOJ to raise rates.

The FTSE 100 is currently 0.3% higher at 9,160, while Sterling trades at $1.3310 and €1.1485.

Source: Bloomberg

Company News

Glencore has this morning released its H1 2025 results which were slightly below market expectations. Having been heavily oversold earlier in the year, the shares have rallied of late, helped in part by a bounce in the coal price and news of additional cost cutting. However, in response to this morning’s lacklustre update, and disclosure that the company will keep its primary listing in London, the shares have been marked down by 3% in early trading.

Glencore is a vertically integrated commodities business, with a strong position in the production of copper, coal, nickel, zinc, cobalt, and precious metals, and a unique marketing business which markets and distributes commodities sourced from internal production and third-party producers to industrial consumers. The group’s strategy is to own large-scale, long-life, low-cost Tier 1 assets.

Glencore is a leading producer of metals that are used in low-carbon and carbon-neutral technologies, such as electric vehicles and renewable energy, the outlook for which is underpinned by robust demand and persistent long-term supply challenges. The IEA estimates that by 2040 the metals requirement for clean energy technologies will amount to at least 2x more copper than in 2020 and 20x-25x more nickel and cobalt. Given the industry’s supply constraints, the group is also increasing its investment in recycling and circularity.

Glencore also owns a 77% interest in Teck’s steelmaking coal business (EVR) – the remaining stake is owned by Nippon Steel (20%) and POSCO (3%). The assets complement Glencore’s existing thermal and steelmaking coal production located in Australia, Colombia, and South Africa. The company believes global population growth, increased urbanisation, and a growing middle class should continue to drive long-term demand for steel and the steelmaking coal required to produce it.

Following consultation with its shareholders, Glencore is retaining its coal and carbon steel materials business. The company believes the cash generative capacity of the business significantly enhances the quality of the overall portfolio, by commodity and geography, and broadens the company’s ability to fund its strong portfolio of copper growth options as well as accelerate shareholder returns. Management sees potential upside through synergies as the EVR assets are integrated into the portfolio. The company will continue to oversee the responsible decline of its thermal coal operations.

Glencore recently completed the merger of its Viterra business with industry rival Bunge Global to create a diversified global agribusiness solutions company with significant synergy and re-rating potential. The new combination is well placed to meet increased global demand as well as the ongoing challenge of providing sustainable, traceable food and feed products to customers around the world. As a result, Glencore now owns 32.8bn shares in Bunge, representing 16.4% of the enlarged company, worth $2.5bn at the current share price, and subject to a 12-month lock-up period. Glencore intends to commence a share buyback programme, underpinned by the value of this shareholding, of up to $1bn, representing c.40% of the current market value, to be completed by the time of its full-year results in February 2026.

Now to today’s results. Against the backdrop of lower average prices for many key commodities, adjusted profit (EBITDA) fell by 14% to $5.4bn, versus the market forecast of $5.8bn.

The Industrial assets’ EBITDA fell by 17% to $3.8bn, primarily driven by weaker coal prices during the period and the impact of the lower copper production. Average prices for the group’s key commodities were mixed compared to last year: copper (+4%), Zinc (+4%), steelmaking coal (-33%), and energy coal (-21%). Adjusted EBITDA mining margins were 24% in the metals operations, 18% in energy coal, and 35% in steelmaking coal. The company reiterated its expectation of meeting full-year production guidance, with the ranges tightened to reflect performance to date.

As reported at last week’s production update, and following a comprehensive review of its industrial asset portfolio, the company has recognised opportunities to streamline its operating structure. This review has identified c.$1bn of cost savings opportunities (against a 2024 baseline) which are expected to be fully delivered by the end of 2026, with more than half targeted for the second half of 2025.

Glencore’s Marketing business exploits arbitrage opportunities that continuously emerge in commodity markets. It provides a good hedge against commodity price volatility and finances the $1bn base dividend (see below), although clearly there is always a risk of potential losses because of that volatility. In the first half of 2025, the division generated adjusted EBIT down 8% to $1.4bn, heavily influenced by US tariff policy uncertainty and tensions in the Middle East. However, the company is on track to hit the middle of its full-year guidance range.

The company recently raised its through-the-cycle long-term adjusted EBIT guidance range for Marketing to $2.3bn-$3.5bn p.a. (from the $2.2bn-$3.2bn which had been in place since 2017). This is despite the loss of c.$0.2bn share of earnings from Viterra (now sold) and has been driven by growth in the core metals and energy businesses, via entry into new markets and expansion of existing product lines, and inflationary progression to today’s dollars. This represents a mid-point increase of 16% from c.$2.5bn (ex-Viterra) to $2.9bn.

Funds from operations fell by 22% to $3.1bn. Net borrowing rose from $11.2bn to $14.5bn, including $1.0bn of marketing lease liabilities This was driven by funding $3.2bn of capex, $1.8bn of shareholder returns, and a $1.1bn increase in non-Readily marketable inventories (RMI) working capital, via a number of commodity pre-pay/lending transactions expected to be high-returning. This leaves gearing at a comfortable 1.1x net debt to EBITDA, or 1.0x including the $900m of cash received in July as part of the Viterra transaction, all of which provides significant financial headroom.

Following the decision to retain the coal and carbon steel materials business, the group’s net debt ceiling which shapes its shareholder returns framework was reset at $10bn. When net debt falls below this level (after the base distribution), cash will be periodically returned to shareholders via special cash distributions and/or share buybacks.

The dividend policy is to pay a fixed $1bn base distribution from the Marketing business, reflecting the resilience, predictability, and stability of the unit’s cash flows, plus a minimum payout of 25% of the Industrial free cash flow.

At the time of the full-year results in February, the company announced $2.2bn ($0.182 per share) of shareholder returns for 2025, made up of a $0.10 per share ($1.2bn) base cash distribution, together with a ‘top-up’ buyback programme of $1.0bn ($0.082 per share) which was completed in June. As highlighted above, the company has now commenced a new $1bn buyback programme covered by the Bunge stake. This will take total announced 2025 shareholder returns to $3.2bn (7% of the current market cap).

Looking forward, the company expects healthy cash flow generation and deleveraging in the second half, noting the 40/60 copper guidance production percentage split between H1 and H2, some unwind of the H1 non-RMI working capital investment, delivery of some of the new cost savings, and healthy free cash flow generation (annualised at $4bn at current spot commodity prices). All in, the company expects net debt to meaningfully reduce by year-end.

The company, which had considered shifting its primary listing from London, said it will retain the listing in the UK, citing that a move to the US would not add value for shareholders.

Overall, while there is increased uncertainty around the impact of geopolitics in the shorter-term, Glencore remains of the view that in certain commodities, the scale and pace of global mine project development will struggle to meet demand for the materials needed in the future. Glencore believes it is well placed to participate in bridging this gap, through the flexibility embedded in both its Marketing and Industrial businesses to respond to global needs.

We believe commodities and resource stocks are inexpensive when compared to financial assets and are relatively under-owned in investor portfolios. Furthermore, the mining sector, and in particular Glencore, has a long history of M&A and we expect further industry consolidation in the future. We note that in 2024 Glencore weighted a bid for Anglo American and a deal with Rio Tinto has also been rumoured in the past.

Source: Bloomberg

Vonovia has today released its first-half 2025 results which highlight a positive development of key performance indicators including an increase in property values. The rental business was robust, while the group’s other segments all reported significant increases in earnings. As a result, full-year guidance for all key performance indicators has been raised.

The shares have been volatile this year, tracking the movement in bund yields, which have been impacted by the new German government’s economic stimulus programme which will lead to a debt overhaul and a significant increase in state spending. Ahead of this afternoon’s analysts’ call, the shares are up 5% in early trading, leaving them on a 37% discount to NAV which was flat in the first half of 2025.

Vonovia is Europe’s largest residential real estate company with a market cap of around €23bn. The group owns around 533k units worth around €83bn across Germany (c. 85%), Sweden, and Austria. The group also manages a further 75k units owned by others. Despite its size, in Germany Vonovia still only owns 2% of a highly fragmented market. The focus is on multi-family housing for low- and medium- income tenants in metropolitan areas. The aim is to benefit from residential megatrends such as urbanisation, energy efficiency, and demographic change.

Following a number of acquisitions, Vonovia now enjoy the benefits of increased scale – over the last 10 years, its adjusted EBITDA margin has risen by 20 percentage points to 80% and its cost per unit has fallen by two thirds.

Luka Mucic is due to take on the role of CEO at the end of the year. Mucic is currently the CFO of Vodafone and was previously the CFO and COO of SAP – with long-term experience in the technology and telecommunications industry, on the face of it the appointment appears a strange one.

In the first half of 2025, all economic indicators developed positively. Adjusted earnings before tax (EBT) – the group’s preferred profit metric – rose by 10.9% to €984.3m. Operating free cash flow (OFCF) – the key figure for internal financing and thus liquidity management – rose by 53.4% to €1,172m.

The most recent market data for the German residential sector has seen a positive development of key performance indicators and confirmation of a trend reversal in property values which increased by 1.3% in first half of the year.

The core rental segment grew earnings by 2.9% to €1,226m, despite having 10,000 fewer homes due to disposals. The vacancy rate remains very low (2.1%) and highlights the ongoing mismatch between supply and demand. The trend towards higher rents continued, while the collection rate was over 99%. This includes all ancillary and energy costs, which management see as a strong sign of affordability.

The organic increase in rent was 4.4%, with new construction accounting for 0.3%. Like-for-like rental growth of 4.1% was driven by market-related factors (+2.9%) and investment in existing buildings (+1.2%). The monthly rent per square metre increased by 4.6% to €8.22. Going forward, under the regulatory system, rent growth is expected to follow inflation higher over time albeit with a lag. For 2025, rental growth is now expected to be ‘more than 4%’, a touch better than the previous expectation of ‘around 4%’. Further out, the target is ‘greater than 5%’ driven by an additional €1bn investment in modernisation (see below).

The company’s other business streams reported significant increases in earnings: development (moved from a loss of €4m to a profit of €54m), recurring sales (+74% to €39m), and value-add (+77% to €101m). Overall, the company is seeing continued signs of increased traction in these segments and is targetting multiple organic growth initiatives to develop non-rental activities. In 2028, the group estimates a contribution of €0.5bn-€0.7bn, equalling 20%-25% of adjusted EBITDA, versus 14% currently.

Vonovia continued to sell properties of inferior quality or in non-core regions. The volume of recurring sales was 23% higher in the first half (at 1,134), with the fair value step-up, at 29.4%, well above last year (24.2%). Outside of the recurring sales segment, 7,151 non-core units were sold, more than double last year.

Other disposals in 2025 include the sale of 13 nursing homes to the city of Hamburg for €380m. This is the group’s last nursing platform and completes the disposal of the remaining discontinued operations. The company reiterated that, going forward, disposal pricing decisions will no longer be driven by leverage considerations but profitability.

Capital is being partly re-allocated toward the construction of new properties and the improvement of the existing portfolio to comply with environmental demands which can drive higher rents. In H1, the group spent €856m (+27%), made up of maintenance +7%, modernisation +51%, and new construction +34%. Vonovia completed only 615 new apartments (down 63%), 54% to hold to rent and 46% for sale. In 2025, Vonovia still intends to significantly increase investments in modernisation and new construction for its own portfolio to approximately €1.2bn, with construction of around 3,000 new units scheduled to begin. Encouragingly, the government coalition agreement means subsidies for modernisation of building and heating systems will continue and initiatives to reduce construction costs are being put in place.

The group’s loan-to-value (LTV) declined has fallen from 47.7% to 47.3%, but still above the 40%-45% target range. Including potential proceeds from announced transactions, the pro-forma LTV is 45.9%, just above the top end of the target corridor. However, the group’s long-term and well-balanced debt maturity profile provides a hedge against increasing financing costs: weighted average maturity (six years); average cost of debt (1.8% vs. 1.9% at the end of 2024); fixed/hedged (98%); and no more than 12% of debt maturing annually. Overall, the group has said that marginal debt costs have come in lower than feared and that pro-active balance sheet stabilisation is no longer required.

The strategy is to roll over secured debt and repay unsecured bonds with disposal proceeds. Vonovia has said its pro-forma cash position of €3.7bn covers all near-term maturities. In May, the company issued €1.3bn of convertible bonds.

The dividend policy is to pay out 50% of earnings plus surplus liquidity from operating free cash flow. In 2024, the payout was raised by 36% to €1.22 per share (c. €1bn; 4%) and paid in June. The 2025 dividend will be declared at the time of the full-year results next March.

The like-for-like market value of the portfolio rose by 1.3% to €82.9bn in the first half. This follows a 0.5% increase in H2 2024, supporting management’s view that the market has now bottomed out. The net asset value (known as EPRA NTA) is unchanged from the start of the year from €45.16.

Guidance for 2025 has been raised: EBT of €1.85bn-€1.95bn (vs. €1.75bn-€1.85bn previously) and adjusted EBITDA at the upper end of the €2.70bn-€2.80bn target range. Operating Free Cash-Flow is now expected to be at the same level as last year, rather than moderately below. The company has also reiterated its target for EBITDA in 2028 of €3.2bn-€3.5bn.

Greater visibility over the outlook for interest rates and property market valuations will be required for the shares to move substantially higher. Clearly, plans by the new government to ease its fiscal rules are unhelpful, with bund yields rising in anticipation of an increase in government debt. Not only does this increase the group’s borrowing costs (and free cash flow) but it also has a negative impact on property values and makes bond proxies such as real estate relatively less attractive. In the meantime, however, we are comforted by the outlook for rental growth, the improved transaction market, and the ongoing substantial mismatch between Vonovia’s equity value, the valuation in the direct real estate market, and the cost of newly constructed properties.

Source: Bloomberg