A stable balance sheet, efficient investments and strong operations form a good outlook for the mining group
Rio Tinto increases dividend despite fall in profit
- Group commits to paying 3% higher dividend than the 2019 interim, despite a 20% fall in net earnings
- All assets remained up and running during H1, helping mitigate heavy drops in profit across the board
- Group continues to progress with investments in the likes of replacement and existing mines, with capital expenditures up 13% backed by a secure balance sheet
- Recommendation: With the group looking well capitalised to navigate the difficult environment we find ourselves in, we maintain our Buy recommendation
Rio Tinto posted resilient half year results this morning taking into account coronavirus disruption. The group have committed to paying shareholders a 3% higher dividend than the interim back in 2019, equivalent to 155 cents a share despite a 20% fall in net earnings which dropped to roughly $3.3bn. It’s important to note this significant drop is largely reflected by $1bn worth of impairments associated with four aluminium smelters and the Diavik diamond mine. On a more positive note it was good to see that all assets remained up and running throughout the first half of the year which helped mitigate heavy drops in profits across the board, with EBITDA down 3% at constant currency prices reflecting the stability of their operations. The group continue to progress with investments in the likes of replacement mines, existing mines and exploration with capital expenditures up 13%, backed by a secure balance sheet.
It’s reassuring to see operations still running efficiently. Rio has become a much more streamlined business than it has been in the past, reforming itself to be one of the lowest cost producers which has reflected in today’s results. The group’s balance sheet remains stable and operations continuing to support bottom line earnings which came in higher than consensus estimates by roughly 16%. It’s evident that the company are reliant on iron with roughly 90% of earnings deriving from the ore. However, a quicker than anticipated recovery in China has supported demand in the area which has resulted in underlying earnings in the segment to come in positive by 1%.
Taking a longer term view, we remain positive on the longer term steel outlook despite the shorter term uncertainty. It’s estimated that global steel demand will continue to grow by 2.5% per year up until 2030 and with the business continuing to actively cut costs, investing efficiently and operating well, we believe Rio is well capitalised to navigate the difficult environment we find ourselves in. We view the shares as a ‘BUY’ for investors willing to accept a medium to higher level of risk.
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