Financial Trading Blog
Stock of the day 09/02/2016 – Rio Tinto PLC
The mining mayhem has showed no signs of abating in 2016, with the consistent reminders of China’s economic slowdown continuing to wreak havoc on the commodity sector as a whole. After entering the New Year at £19.55 (compared to £30.06 at the start of 2015) Rio Tinto, and the rest of its mining peers, immediately began to fall, the stock reaching £15.57, its lowest price since 2009, by the middle of January.
Yet last week saw a huge miners-wide jump in the wake of the weak dollar, Rio itself lifting 15% over 2 days to reach a fresh 4 week high. The stock sits at a current trading price of £17.67 (IT-Finance.com, 09/02/2016).
(Source: IT-Finance.com 09/02/2016)
Given it is the first of the major miners reporting this earnings season, Rio Tinto’s results will likely have a big impact on the sector this week. In terms of Rio’s actual figures analysts are forecasting EBITDA to fall 35% to $12.9 billion, whilst underlying earnings are expected to halve to $4.5 billion; net debt, meanwhile, is projected to jump by 18% to $14.8 billion.
There is also the looming threat of a ratings cut, with Standard & Poor’s stating that Rio Tinto’s A- could be slashed if the company doesn’t announce ‘supportive measures’ to deal with the current (and ongoing) commodity crunch, with the company already on the negative watch list. Such ‘supportive measures’ may come in the form of a dividend cut, analysts expecting the company to announce its progressive policy is ‘under review’.
Rio Tinto has a consensus rating of ‘Hold’ with an average target price of £23.30.
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