Rio Tinto can dig out solid returns

Ambitious Greggs is a hold for now; Slimmed-down SSL looks over-priced
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It is the Chinese, you see. The extraordinary recent growth of China's manufacturing industries has been sucking in raw materials, such as copper, and driving up prices in the commodity markets. That, plus anticipation of a broad-based economic recovery next year.

The mining giant Rio Tinto estimates that Chinese imports of iron ore, its most important product, will rise from 100 million tonnes last year to about 250 million by the end of the decade as demand for steel surges. While some doomsayers worry a speculative bubble has built up in the commodity markets (and maybe some prices are due for a pause), it seems suppliers are struggling to keep up with demand. These high metals prices are here to stay and are still to be fully drip-fed into the City's forecasts for mining company profits.

Rio Tinto produced 7.2 per cent more iron ore in the past three months than it did in the same period last year, according to its production report yesterday, and plans further expansion of its operations in Australia. The worry is that limited freight capacity could create a bottleneck in shipments to the Far East.

The rest of the statement was mixed: coal production has been cut because of falling demand; copper production will suffer in the coming months as a result of an accident at one mine; aluminium output was up but missed City expectations; diamond production outshone most forecasts.

As such a diverse, global giant, Rio Tinto's shares ebb and flow with the economic tide and, since this is now obviously rising, the stock does not come cheap any more. The company has a mixed record when it comes to profitability, and its most recent results disappointed because its costs, in strengthening emerging markets currencies, were greater than expected. The company's detractors argue that the share price, on 18 times next year's mooted earnings, leaves no room for disappointment. But with earnings forecasts continuing to rise, the shares should too. Buy.

Ambitious Greggs is a hold for now

Greggs, the high street baker, had egg mayonnaise on its face when it warned in August that the sunshine was putting people off buying its pies and the like.

Yesterday's trading update suggested trading was improving for the pasty prince. The company's like-for-like sales accelerated from 1.5 per cent growth during the first eight weeks of its second half to 2 per cent over the most recent ten weeks. An improvement, yes, but a far cry from last year's near double-digit underlying growth.

Although the impending festive season should mean more peckish shoppers wandering into Greggs' 1,200-odd outlets, any sign of consumers tightening their belts will mean fewer people out and about to be tempted by a sticky bun. And with the popularity of the carbohydrate-unfriendly Atkins diet soaring, Greggs looks certain to suffer from that particular brand of belt-tightening. It's hard to do "carb free" when bread is literally your bread and butter.

The ambitious Greggs still sees potential for doubling its estate to 2,000 shops by the end of the decade, but the rate of new openings seems to be slowing slightly. It regards the Midlands and the South-east as the sweetest growth opportunities, but will have to use its loaf to compete against the plethora of sandwich specialists in and around London.

At 14 times next year's earnings, Greggs' rolls look better value than its shares, up 57.5p to 3102.5p. Hold.

Slimmed-down SSL looks over-priced

SSL International, maker of Durex condoms and Scholl footcare products, is the unwieldy agglomeration of three companies put together in the Nineties and never properly integrated. Inside the company dubious sales practices and outright fraud was able to flourish until a management clear-out in 2001. Only now is it cutting the overheads that should have been tackled long ago.

It is also slimming right back to concentrate on its main consumer brands, and there was good news yesterday that the chief executive, Brian Buchan, has truly revitalised Durex sales through a new set of products and a marketing thrust. The 5 per cent sales growth trumpeted yesterday is down to Durex (with a little help from the appreciating euro) since Scholl's more recent revamp wasn't enough to improve on last year's sales.

The sale of the hospital products side is dragging on but should be complete by the end of the year. This will leave SSL with low-margin products in a competitive, mature market.

This column has not been a fan of SSL and it is fair to say we missed a trick in telling readers to stay out when, in May, the shares were 217.5p. Since then, they have risen to close at 304p yesterday, in large part thanks to a bid approach from Reckitt Benckiser. That global giant never followed through with the acquisition, though, and SSL is only worth holding for its 4 per cent dividend yield.