Is Rio Tinto still a Buy following its full-year results?

In the wake of Rio Tinto's FY19 results, we examine how some of Australia's top analysts currently rate the stock.

A volatile period

Rio Tinto – one of Australia’s largest mining companies – yesterday reported its full-year results, after the market close.

Turning to today's trade, as the day wore on RIO's share price dropped as much as 1.80% -- to $90.24 per share. Ultimately, this caps off a volatile period for the iron ore-focused miner: since late January its share price has fallen ~15%.

Though experiencing volatile price action, RIO's FY19 results were ‘solid’, according to some analysts. Here, the miner posted stronger free cash flow (FCF); as well as better underlying EBITDA and earnings. Though, as you will see from the table below, a number of key metrics also likely disappointed some investors.

Rio Tinto’s key FY19 financial results

Metric (in USD)

FY19

YoY change

Free cash flow

$9,158 million

+31%

Underlying EBITDA

$21,197 million

+17%

Underlying earnings

$10,373 million

+18%

Net earnings

$8,010 million

- 41%

Total dividend per share

$443.0 cents

-19%

Indeed, though many positives came out of the FY19 report, RIO did reveal significantly lower net profits – primarily due to $1.7 billion in impairment charges recorded during the year.

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Even so, Rio Tinto’s Chief Executive, Jean-Sébastien Jacques described the FY19 results as ‘strong’, and further said that:

'Our world-class portfolio and strong balance sheet serve us well in all market conditions, and are particularly valuable in the current volatile environment. We are closely monitoring the impact of the Covid-19 virus and are prepared for some short-term impacts, such as supply-chain issues.'

Ultimately though, the full economic threat posed by the Coronavirus crisis remains impossible to ascertain. This is likely the chief reason that investors across the board are so worried about it.

Rio Tinto share price: to buy or not to buy

Overall, the current analyst consensus for Rio Tinto (ASX: RIO) is split right down the middle: with five Buy ratings, five Hold ratings and five Sell ratings, according to Bloomberg Data.

On average, RIO currently has a 12-month price target of $92.34 – which would imply a shade of potential upside from current price levels, also according to Bloomberg Data.

Taking a more in-depth view, Credit Suisse responded bearishly to RIO’s results release: reiterating their Underperform rating and $94.00 price target.

Here, Credit Suisse analysts said that the miner has much to tackle over the next year and that, ‘the near term outlook remains very uncertain but if iron ore is to follow say copper (our numbers assume US$90/t average iron ore in CY19, exiting the year at US$80/t) then there’s likely more downside pressure to come.’

By comparison, Macquarie Wealth Management took a more optimistic view on Rio Tinto’s FY19 results, reiterating their Outperform rating and $109.00 price target.

Centrally, Macquarie analysts were impressed by RIO's net debt position, iron ore cost guidance, and the strength of the miner's underlying earnings – which were in-line with the investment bank’s forecasts.

It wasn't all roses mind you, Macquarie analysts 'didn't like' RIO's weaker net profits, the lack of a special dividend and the company's recently flagged shipment downgrade.

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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