UBS upgraded its ratings for both Glencore and Xstrata on Wednesday from 'neutral' to 'buy', though analysts suggest that the commodities trader and mining firm are 'better together'.

"Following the recommendation of the new terms by the Xstrata board, and a change to the voting structure, we now believe that the deal is highly likely to go through (although risks remain, especially around Qatar)," the broker said in a research report this morning.

Even after factoring in the $800m of synergies into its forecast for the net present value (NPV) of combined group (50% in 2013 and 100% thereafter), UBS sees "further significant upside potential for synergies in the marketing division, and through tax and financial consolidation."

"This makes valuation for the combined group attractive, which is trading on 0.8 times price/NPV, and provides +20% upside potential to our price targets for both Glencore and Xstrata."

UBS said that the combined entity will have "high operational leverage". The broker thinks that this makes it attractive in the commodity upswing it anticipates under a new round of quantitative easing in the US.

"We maintain our view that the combined Glencore Xstrata will remain the most dynamic company among the UK listed miners, with the potential synergies from marketing putting it in a unique position to grow through acquisition," the broker said.

Both Glencore and Xstrata were trading around 0.7% higher before the close of trade.

BC

Related share prices
Xstrata (XTA) share price
Glencore Xstrata (GLEN) share price