15th April 2014
Following the announcement of Rio Tinto’s latest market update brokers are tipping the world’s third-largest diversified mining company as a ‘buy’ writes Philip Scott.
While the business started 2014 with a series of production records the overall production numbers have since fallen short of analyst estimates, primarily as a result of delays caused by a tropical storm at the Pilbara iron ore operations in Australia.
Despite a 2% drop today, the analyst consensus has the miner’s shares rated a ‘buy’ with brokers at The Share Centre and Investec Securities coming out in support of the group, repeating their respective upbeat recommendations.
Commenting on the latest update, Helal Miah, investment research analyst at The Share Centre, says: “Weather related and maintenance difficulties impacted the figures, however investors should not be concerned as the company has maintained its production guidance for the full year.
“Global iron ore shipments were up 16% from the same period last year, while iron ore production was up 8% at 66.4m tonnes. These gains were helped by completion of infrastructure works last year and investors should be aware further expansion works are yet to be completed. We continue to recommend investors ‘buy’ Rio Tinto based on an improving global economic environment.”
Rio Tinto, the second-largest seaborne iron ore producer – a commodity that accounts for around 80% of profits is also a major producer of copper, coal and aluminium. But like of its peers, it has endured a rough period, chiefly as a result of the slowdown in China’s demand for commodities but an improving outlook has helped bolster its share price, with the stock now up 11% over 12 months.
Jonathan Jackson, head of equities, at brokerage Killik & Co is also positive on the shares and believes the group is relatively well placed to cope with commodity price volatility. He says: “Although today’s update included a couple of minor downgrades to production guidance, these were in the commodities that are less important for the group; the key iron unit remains on track. “
The shares currently trade on 9x consensus 2015 earnings, a level Jackson believes is attractive, and also offer a dividend yield of 3.6%.
He adds: “Although profits will be impacted if, as expected, the iron ore price falls as new production comes onstream, we believe the current rating already discounts this to some extent.”
Rio Tinto chief executive Sam Walsh says: “Rio Tinto has started the year with a series of performance records as we continue to drive productivity gains across our operations.”