AnaRio Tinto interim net profit of more than $US4 billion

Analysts forecasting Rio Tinto interim net profit of more than $US4 billion


A bumper net profit after tax in excess of $US4 billion and a significant fall in net debt are forecast by analysts to be among the highlights of miner Rio Tinto's interim financial results on Wednesday.
Analysts are also predicting that the miner will pay a hefty dividend to shareholders, but the dividend predictions vary considerably. Analysts have also raised the possibility of an off-market share buyback.

Rio Tinto Chairman Jan du Plessis at the Rio AGM in Sydney this year. Photo: Daniel Munoz
Deutsche Bank predicts an interim dividend of US134.5¢ per share, which would equate to a 60 per cent payout. Other analysts are predicting a dividend of much closer to US100¢ per share.
In a new report released this week UBS has forecast strong earnings growth for Rio Tinto, predicting underlying earnings of $US4.2 billion.
"All business units are forecast to be profit making and improve h/h (with the exception of Copper & Diamonds, for which we forecast NPAT of $US0m)," UBS' Glyn Lawcock wrote.

UBS expects iron ore operations to generate $US3.29 billion in underlying earnings, which would represent a rise year-on-year of a massive 89 per cent.
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UBS has a "buy" rating on the stock, and a 12-month price target of $75, which is well above where the stock is currently trading. Rio was up 16¢ on Wednesday, closing at $65.95. But at one point it surged as high as $66.70 during the day.
"We retain our Buy rating with a view that Rio will continue to focus on value over volume and return surplus cash to shareholders," Mr Lawcock wrote.



UBS believes that the key issues likely to be the focus of the Rio result will be cost out measures, capital management, free cash flow generation and portfolio shaping. On the latter topic, the UBS report contemplates the following question: "could we see the unveiling of a strategy to extricate" non-core assets from the portfolio, and it lists assets including Australian Refining and Smelting, Australian Coal and Grasberg.
Deutsche Bank also has a "Buy" rating on Rio and a healthy 12-month price target on the stock of $73.
"We expect net debt to decrease to $US7.6b (vs. consensus of $US7.9b), equating to 14 per cent gearing, well below the 20-30 per cent target range," Deutsche said.
Deutsche also predicted a further $US500 million on-market UK buyback by Rio.
Citi, meanwhile, forecast underlying earnings for Rio of $US4.33 billion, and said such a result would be "primarily driven by higher iron ore prices offsetting lower volumes".