All You Need To Know About This Metal & Mining Stock: RIO TINTO PLC (RIO)

  • Feb 26, 2019 GMT
  • Team Kalkine
All You Need To Know About This Metal & Mining Stock: RIO TINTO PLC (RIO)

Business Profile

Rio Tinto Plc (RIO) is a leading mining and metal company listed on the London Stock Exchange. Its area of operations categorised into three segments: finding, mining, and processing mineral resources. As per the company website, Rio employs around 47,000 workforces and operating in 35 countries across six continents. Rio Tinto is a globally renowned leader in Aluminium, one of the world's most omnipresent metals. From the last 110 years, the company is engaged in the Aluminium business. The Company is based out in London, the United Kingdom. 

Recent Developments

  • On 21st December 2018, Company reported the sale of an entire stake in the Grasberg mine in Indonesia for 3.5 billion US Dollars.
  • On 14th December 2018, Company reported disposal of its aluminium smelter located at Dunkerque, France to Liberty House for USD$500 million.
  • On 29th November 2018, the group has agreed to USD$2.6 billion investment in Koodaideri Iron ore mine located in Western Australia.
  • On 28th November 2018, Company announced the appointment of Simon McKeon AO as an independent non-executive director of Rio Tinto Plc.
  • On 26th November 2018, Rio agreed to sell its 68.62 per cent stake in Rossing Uranium Ltd for consideration up to 106.5 million US Dollars.

Segments Contribution

Its areas of operation categorised into four main segments: Iron Ore, Aluminium, Energy & Minerals and Copper & Diamond.

As per FY17 Annual Report, Rio Tinto's 46 per cent of the business revenue comer from Iron Ore segment, 27 per cent of business revenue came from Aluminium segment, 19 per cent of business revenue came from Energy & Minerals segment, and 12 per cent of business revenue came from Copper & Diamond segment respectively.

Q4FY18 Production Update

(Source: Company filing, LSE)

Aluminium production was 3% lower in FY18 on account of an ongoing labour disruption at the Becancour smelter in Canada. Mined Copper production was 33% higher than FY17, primarily on account of a strong performance at Escondida. Titanium dioxide production plunged 15% in 2018 due to production disruption at Rio Tinto Fer et Titane in the second quarter and labour disputes between the contractor and their employees at Richard Bay Minerals in the first half.

 

Income Statement for the period ended 30th June 2018 (USD Million)

(Source: Company filings, LSE)

 

Financial Highlights:

  • Rio reported revenue of $19, 914 million for the six months ended on 30th June 2018, 3 per cent above its H1FY17 revenue.
  • Operating profit of $6,458 million stood 5.4 per cent higher in H1 FY18 against its H1FY17 operating profit.
  • Pre-tax Profit stood at $6,732 mn was $1,782 mn higher against its H1 FY17 pre-tax profit of $4,956mn.
  • Finance cost reduced to $332 mn from $595 mn in H1 FY18, which was 44 per cent lower against H1 FY17.
  • Profit attributed to the Rio’s shareholders stood at $4,380 mn in H1 FY18, up by 32.5 per cent against H1 FY17 Profit.
  • EPS (basic) grew by 36.7 per cent during H1 FY18 against the EPS of H1 FY17.

Ratios

Highlights

  • Rio’s EBITDA margin during H1FY18 was 41.5 per cent, higher than the industry average of 39.8 per cent, but 260 basis points below its H1 FY17 EBITDA margin.
  • Company’s Net Margin of 22.6 per cent during the H1FY18 was considerably higher against the industry median.
  • The return on equity (ROE) is the ratio between the profit made and own funds provided by the shareholders. Rio’s ROE in HI FY18 was 10.1 per cent, 340 basis points higher against the industry median.
  • The current liquidity ratio is a measure to assess whether current assets are sufficient to pay its short-term obligations. In Rio's case, the current ratio of 1.47 in H1 FY18 was below the industry average of 1.82.
  • In H1 FY18, Asset to Equity ratio stood at 2.12, compared to the industry average of 2.19.
  • Reported Debt-Equity ratio in H1 FY18 was 0.31, down by 16 per cent against its previous year. The company is less levered as compared to the industry median.

 

Share Price Commentary

On 25th February 2019, Rio Tinto share closed at GBp 4,425, down by 0.90 per cent against its previous day closing. During the last one-year period stock has reached at a 52w high of GBp4,541 and a 52w low of GBp3,460. At the current price, the stock is trading 2.55 per cent below its 52w high and 27.89 per cent above its 52w low, this indicates stock has the potential to register a new 52w high in the near term. On year-to-date basis stock is up by 18.63 per cent, and in the last three months stock is up by 21.5 per cent respectively. The company’s stock beta was 1.37, reflecting relatively higher volatility as compared to the benchmark index. Total outstanding market capitalization was around £75.11 billion and a dividend yield of 5.11 per cent.

Conclusion

The ongoing uptrend in the company’s stock price makes Rio Tinto stock’s hot and new highs could be seen in the short-term.  Also, at margin front, the company has reported significantly higher EBITDA and Net Margin compared to the industry median. With strong fundamentals, the market can keep a watch on the Rio Tinto stock going ahead.

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