Hatchworks has conducted due diligence on Rio Tinto, a world leader in mining research, prospecting and operating. They produce iron ore for steel, aluminium for cars and smart phones, copper for wind turbines, diamonds and titanium for household products.
Headquartered in London, United Kingdom, Rio Tinto plc is listed on the London and New York Stock Exchanges, whereas Rio Tinto Limited is listed on the Australian Stock Exchange, all under the symbol ‘’RIO’’. The companies are joined together in a dual-listed company structure (DLC) as a single economic entity.
Financials — Rio Tinto
(Source: Marketscreener.com, investing.com)
Rio Tinto’s current market cap is $90.1B and stock price is around $53.
With a predicted net-income loss of -14% for 2020E and 2021E, and a net income estimate for 2021E of in excess of $7.6B, this points to a P/E ratio of 11.6x.
The revenue/sales forecast is $40.6B for 2020E, indicating an EV/Sales ratio of 2.36x.
In terms of profitability, an operating margin of 35.4% is predicted for 2020E. This is higher than competitors such as Anglo American (AAL), for example, who has a lower operating margin of 24.2% for 2020E.
Rio Tinto is a yielding equity with a relatively high yield of 6.47% for 2020E.
It is worth noting that, after the previous recession, the share price made a significant plunge of 75%. Another important note is that Rio Tinto (RIO) net sales consists 60% of iron ore production and 29.7% of aluminum.
Currently, the coronavirus outbreak in Wuhan, China has already taken a heavy toll. Many emerging market currencies have weakened. Oil prices have also declined sharply, reflecting a combination of weaker sentiment and concerns that the virus outbreak and its containment measures will lead to lower demand for oil and other raw materials by China. Around 44.6% of Rio Tinto (RIO) net sales comes from China.
According to our analysis, Rio Tinto has a strong operating margin, low debt position, and an attractive yield. However, due to the uncertainties in China and other countries, and the predicted net loss mentioned above, Hatchworks will not be investing at this stage, but will keep Rio Tinto on its radar.
The Hatchscore is 5 out of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies
What is Rio Tinto?
Rio Tinto is one of the world’s leading mining research, prospecting and operating multinationals. They’re operating in about 35 countries — in mines, smelters and refineries, as well as in sales offices, data centres, research and development labs.
- The Vanguard Group, Inc.
- BlackRock Investment Management (UK) Ltd.
- Aluminum Corporation of China Limited
- Capital Research & Management Co. (World Investors & Global Investors)
Advisors and Bookrunners:
- Credit Suisse.
- J.P. Morgan Cazenove.
- Deutsche Bank.
- Morgan Stanley.
What are the risks?
- Commodity prices, driven by demand and supply for Rio Tinto’s products, vary outside of expectations over time.
- Rio Tinto’s operations are located across a number of jurisdictions, which exposes Rio Tinto to a wide range of economic, political, societal and regulatory environments.
- General cost inflation in the resources sector is affecting both operations and projects, resulting in significant pressure on capital and operating costs.
- Anglo American (AAL).
- Sandvik (SDVKY).
- Arconic (ARNC).
- Barrick Gold Corporation (ABX).
- Simon Thompson: Chairman.
- J-S Jacques: CEO.
- Jakob Stausholm: CFO.
The Hatchwork Team
The forecast figures are based on the data of Marketscreener.com, and not from hatchworks: https://www.marketscreener.com/RIO-TINTO-PLC-9590196/financials/
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