Investments: Short-term caution does nothing to dim the long-term case for Rio

Rio Tinto

OUR VIEW: BUY

SHARE PRICE: 3,164P (+132P)

Rio Tinto is among the select group of companies that can reasonably be considered mining bellwethers. Alongside the likes of BHP Billiton, Brazil's Vale and a handful of others, it is a fully fledged commodities behemoth. It is, therefore, useful to pay attention to its comments on the goings-on in the resources world. And the latest noises have been less than bullish.

Speaking on Monday, Rio's chief executive, Tom Albanese, warned that "continuing stresses in the eurozone and a weaker outlook for the US economy are inevitably affecting customer sentiment, which has become more negative in recent months".

So, time to worry? Yes and no, in our view. Yes, the commodities market faces headwinds in the shape of the European debt crisis and the weak US economy. There is also the chance of some slowdown in China's heady rates of growth. But investors should note that these challenges will only add pressure in the short term (and possibly the medium term).

Long term, once the euro crisis has come to its conclusion and the global economy has recovered (and it will, in due course), the fact remains that the world is hungry for resources. And companies like Rio, who not only produce tonnes upon tonnes of prized industrial commodities today but are also investing to prepare for future demand, will reap the fruits of this appetite. There may be some short-term pressure on the share price but, further out, Rio remains well positioned.

Moreover, on the short-term picture, we were encouraged by the company's disclosure that it "continues to sell all it can produce". Customers may be cautious and commodity prices might fall back in coming months. But they will eventually turn north as hundreds of millions of people in places like India and China and elsewhere consume larger amounts of commodities. In the end, then, our rationale remains unchanged. We have been buyers of Rio Tinto because of the long-term trends. They remain intact.

Senior

OUR VIEW: BUY

SHARE PRICE: 164.8P (+2.8P)

Senior announced what we viewed as a pretty good deal yesterday. The industrial manufacturer said it had bought Weston, which produces machine parts and assemblies for the commercial aerospace market.

To put the deal into some context, it is worth remembering that the big aircraft manufacturers notched up some good orders at recent air shows. This bodes well for commercial aerospace building activity, which is what matters in this instance.

Weston is particularly exposed to Airbus, which is another big positive, as the European plane maker has recently booked some eye-catching orders (think of its success in luring customers with its expanded A320 family, for example). We therefore agree with Shore Capital's assessment that, while there may be no cost savings from the deal, the "acquisition is strategic".

Turning to the shares, Senior is trading higher than when we bought in earlier this year. But even then, it is hardly pricey, with the market valuing the stock at around 10 times forward earnings for next year. On enterprise value to earnings before interest, tax, depreciation and amortisation, it is on around 6.3 times, according to Shore. There is no reason to bank profits, as we think there is more to come.

Phoenix IT

OUR VIEW: HOLD

SHARE PRICE: 163P (-25.75P)

Phoenix IT appears to be a fair way from emerging from the flames, especially after yesterday's half-yearly results spooked investors and sent the shares tumbling by nearly 13 per cent last night.

Group revenues at the technology services firm declined from £148.4m in the six months to the end of September 2010, to £132.3m a year later. Pre-tax profits fell from £13.3m to £12.1m, which was in line with expectations among City analysts.

One problem for those watching the stock was the deteriorating debt position, as the net debt figure rose from £65m a year ago to £71.1m on 30 September. The company does expect working capital to improve in the second half, although it guided pre-tax profits lower during the period. But it was not just the debt position, but a disappointing order book, which was 11 per cent lower than a year earlier, that prompted the sharp, bruising sell-off in the Phoenix IT share price.

The Panmure Gordon analyst George O'Connor, while acknowledging that forecast downgrades and a fall in the shares were inevitable in light of the interims, said plans by the new chief executive, David Courtley, to restructure could spark a recovery in the longer term. However, he did acknowledge this was not a stock for "widows and orphans". No indeed, particularly in light of the conditions in the wider market. So, we would not buy, given the risk. That said, the prospect of a turnaround, and the thin valuation following yesterday's fall, means we would not sell either.

PROMOTED VIDEO
Sport
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave long-running series
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
voices
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
athletics
Arts and Entertainment
tvReview: 'Time Heist' sees a darker side to Peter Capaldi's Doctor
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
music
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam