Rio Tinto (RIO) has reported its third-quarter production numbers, with Pilbara iron ore shipments of 82.9Mt, coming in below consensus of 83.2Mt, and 1% lower than last year.
RIO lowered its full-year production guidance to the bottom end of the prior 320-335MT range, while cost guidance remained unchanged. RIO has warned of further downside risks to global demand, as consumer confidence wains and global economy slows.
This comes alongside a weakening iron ore price, which fell just under 24.5%, from $130 to $98 in the third quarter. Recent headlines from China surrounding the COVID policy sparked concerns about global demand and supply risk, which have clouded the iron ore outlook. Brokers have identified short-term headwinds and have adjusted price forecasts accordingly for metals prices but expect a rebound in the second half of 2023, from an easing in China and a pivot in the Fed policy from the second quarter of 2023. The average target price for RIO is $102.93, which indicates a 9.3% upside.
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RIO has an interesting fundamental picture, with EPS expected to fall in the next four years, although this comes after exceptional recent strength. Revenue growth is also expected to fall in each of the next four years. PE is set to increase steadily over the next four years, and the company is currently trading at a slightly lower-than-average 6.4x. The big number for RIO is its gross yield, which is down to 13.7% from 25.9% last year but is remaining elevated in the next four years. Dividend growth is expected to slip in the coming years, but the payout ratio is remaining around 60-65%, so there is still room to keep investors happy.
The chart doesn’t shed too much light on either side, with the share price basically where it was a year ago.
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More about the author – Layton MembreyLayton Membrey has been working with the Marcus Today newsletter since 2021. He is currently undertaking a Master of Commerce specialising in Finance at Deakin University, which he will complete in 2023. Layton has quickly accumulated knowledge from Marcus and Henry, enabling him to develop his own investment style.
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