Afternoon Report / RIO’s results just out – it’s a beat on first (quick) read (RIO, IGO)

By Market Matters 29 July 20

RIO’s results just out – it’s a beat on first (quick) read (RIO, IGO)

Market Matters Afternoon Report 29th July 2020

WHAT MATTERED TODAY

The market managed to start the day on the front foot despite the weak lead from US equities this morning but it did come off the boil pretty quickly at the time local inflation data hit the tape (11am). While the headline numbers were largely inline, the trimmed mean figures were worse than expected, printing a small negative vs the market targeting a small positive quarter on quarter.

Source: Bloomberg

Materials and energy were the laggards of the day while the banks were more supportive on the back of some better than feared direction from APRA on dividends – we discussed this in more detail in the income note today. Independence Group was the worst performer while Rio Tinto is just out with their first half result  - more on these two below.

Overall, the ASX 200 added -14pts / -0.23%% to close at 6006. Dow Futures are trading up +29pts / +0.11 

ASX 200 Chart

ASX 200 Chart

CATCHING MY EYE

Rio Tinto (RIO) -0.73%: 1H20 results are just out for RIO and it’s a beat according to Peter O’Connor. At the earnings line, they topped expectations by around 9% and 4% at the EBITDA line. That is a good outcome. Here are Peter’s main points:

·         NPAT beat saves an dividend miss. Based on consensus numbers it seemed like they’d miss on the dividend  however given the beat on the NPAT line the dividend was ‘inline’

·         Not just iron ore. Interestingly ALL operating divisions contributed to the beat which at the EBITDA level was a smaller 4% (~$400m). The beat was spread across iron ore, aluminium and copper broadly 1/3 each (although aluminium was the standout)

·         Dividend in line. The market was expecting US$1.55 and that is exactly what they got. Based on the average 1H payout ratio of recent years a number more like US$1.47 was in store. Maybe the directors wanted to flag “confidence” in the outlook by (i) beating 1H19 dividend (US$1.51) and (ii) posting the largest 1H dividend under the new dividend system. OR a cynical observer may ponder if said dividend meet may attract more attention than recent corporate governance issues – iron ore etc.

·         Earnings contributions. Iron ore is still key delivering ~80% of EBITDA a little bit lower than the 85% we expected given better outcomes in copper and aluminium.

Overall, a good start to the earnings season for the global “big miners” – Anglo tonight as well which we hold in the MM International Equities Portfolio, Glencore tomorrow and BHP in a few weeks.

Rio Tinto (RIO) Chart

Independence Group (IGO) -13.2%: todays quarterly for the nickel/gold miner came largely inline with expectations for the year gone, however it disappointed on the years ahead. well below expectations. For the final quarter the companies key nickel & copper mine, Nova, had a cracking end to the year, helping beat guidance across the board. Their gold mine, Tropicana, met expectations for the year, and a solid commodity tail wind int eh last quarter too NPAT to $155m for the full year – around in line with expectations.

The market did take issue with the forward looking statements, with the company guiding nickel production at Nova lower, and costs higher. The same is also expected in gold sales with production set to fall and costs rise on higher capex. So despite the sold finish to the year, it looks like momentum is set to stall for IGO. We prefer others for both gold or nickel exposure.

Independence Group (IGO) chart

BROKER MOVES:

·         Temple & Webster Cut to Hold at Canaccord; PT A$8.50

·         Brickworks Rated New Buy at EL & C Baillieu; PT A$18.25

·         Virgin Money UK GDRs Raised to Buy at Bell Potter; PT A$2

·         GUD Holdings Cut to Neutral at Citi; PT A$12.75

·         Regis Resources Cut to Neutral at Credit Suisse; PT A$5.90

·         GPT Group Raised to Buy at Jefferies; PT A$4.78

·         Charter Hall Retail Raised to Buy at Jefferies; PT A$3.59

·         Elders Reinstated Buy at Goldman; PT A$13.65

·         Corporate Travel Raised to Buy at Ord Minnett; PT A$12.97

·         Mineral Resources Cut to Neutral at Hartleys Ltd; PT A$20.23

OUR CALLS

No changes today

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

Disclosure

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