Having looked through the RIO results, I will classify my takeaways. Obviously others may add to this or have alternate points of view.
The Good - Strong balance sheet with gearing ratio reduced from 24% to 17%
- EBITDA margin grew by 4% to 38%
- Dividend larger than expected
- $500m share buyback on the LSE (which trades at a 14% discount to ASX)
- I Ore ROA 28%
- I Ore EBITDA margin 58%
- I Ore Earnings as % of revenue 31%
- Cost savings are continueing
The Bad - Energy and Minerals ROA 8.4%
- I Ore accounted for 76% of the earnings (too many eggs in the one basket)
The Ugly - Aluminium (Bauxite, Alumina and Aluminium) ROA 6% (RIO is still choking on the Alcan acquisition)
- Copper and Diamonds ROA 0%
- Alum Earnings as % of revenue 10%
- Energy and minerals Earnings as % of revenue 9% (remember this business is being sold)
- Copper and Diamonds Earnings as % of revenue is a loss
RIO, in developing OT u/g should help to give copper sales a leg up, to reduce RIO's dependence on I Ore, but with the sale of the coal division, RIO, will have I Ore, Alum and Copper and the current ROA on the last two is poor.
RIO is obviously "making hay while the sun shines" (John Heywood 1546) with I Ore, but if the I Ore price drops, it will struggle as it's other commodities are no firing as they should.
Overall, IMO the result is 5.5 out of 10.
HT1
RIO Price at posting:
$65.29 Sentiment: None Disclosure: Held
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