First Glance | RIO – Lock it in and build on higher prices in 2H
29 July 2020
|Rio Tinto RIO|
|Lock it in and build on higher prices|
|Rating*:||SELL||Price Target*:||$86.00||Share Price:||$103.60|
|*Note: Rating and Price Target recorded at pre-announcement levels as detailed in our research report dated 21 July Month 2020. This may be subject to review or change|
|Snapshot: 1H20 results should be well received with a 5% beat at the EBITDA level and 10% on Underlying earnings relative to consensus. Segment earnings and EBITDA were down 7% on 1H19 and underlying earnings of US$4,750m were 4% lower than 1H19. Reported profit lower at US$3,316m due to impairments and provisions. DPS as expected at US$1.55ps (payout ratio 53%). Commodity prices now higher than the first half which would imply a beat to consensus FY20 underlying EBITDA of US$19.061m (1H US$9,640) and underlying earnings of US$9.030m (1H $4,750m).
EBITDA down 6% on 1H19: Still a good number US$9,640m. The rally in the iron ore price this year makes you forget how strong last year and how weak aluminium and copper have been this year (see Fig 2 below). The iron ore price was only up 0.5% yoy and copper was down 11% and aluminium prices were down 13%.
Impairments hit reported profit: The reported profit was US$3,316m was US$1,434m lower than the underlying profit of US$4,750m due to impairments of US$1,033m in four aluminium smelters & Diavik plus fx and closure provisions.
Balance sheet strong: Cash generated from operations was US$5.6bn was 12% lower due to lower prices for aluminium, copper and lower dividends. Net debt increased US$1.2bn to US$4.8bn, gearing ratio is still a low 10% (up from 7% in December following the final div).
Production guidance: unchanged.
Projects: Simandou is “progressing”, RIO is working with partners to optimize infrastructure elements (ie Chinese to update and re-engineer the rail line to the coast). A full feasibility study has been approved for the Jadar lithium project. Winu copper-gold project to be in production in 2023. Koodaideri on track for early 2022 ramp-up.
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