The Investment Column : RTZ hammered by plunging prices and production snags - Business - News - The Independent

The Investment Column : RTZ hammered by plunging prices and production snags

Last year was an inauspicious time to launch the marriage of the UK mining giant RTZ with its Australian associate CRA. Copper prices sank over a fifth in the wake of the Sumitomo copper scandal and Kennecott, the copper and gold mining group acquired from BP, continued to suffer gremlins in its new, state-of-the-art smelting facility at Bingham Canyon in the US.

Together, those two items decimated profits in the year to December, leaving them 15 per cent lower at $1.1bn (pounds 701m), or nearly a quarter down on the group's favoured basis, stripping out exceptional items. As well as the merger itself, the comparisons are further complicated by the group's decision to move to reporting in dollars rather than sterling. It is perhaps appropriate that the combined group should be wiping the slate clean by changing its name back to Rio Tinto.

RTZ certainly had its problems last year. Every 10 cent fall in the copper and aluminium price knocks $100m and $55m off group earnings, so the 29 cent average fall in the former last year and a 13 cent drop in the latter would inevitably be painful. But RTZ could hardly be blamed for the $324m those two metals shaved from earnings.

More easily controllable were the continuing problems at Kennecott. Had it been running at full design capacity last year, earnings from the copper smelter would have been $150m more than they actually were, RTZ said. It ran at under 50 per cent. Analysts are relatively reassured that the problem is over. However, work to upgrade the casting capability in the early summer will see the operation closed down for another six weeks.

Elsewhere, RTZ continues to show its class, with another 10 per cent rise in mined production volumes last year, building on the 7 per cent average annual increase maintained since 1989.

The group's gearing is back on the way up again, rising from 16 to 22 per cent last year as capital expenditure is jacked up to between $1.5bn and $2bn over the next few years. Crucial to the future will be Indonesia. At its Grasberg unit, a $960m expansion will see production there rise from 118,000 tonnes of ore to nearly 200,000 tonnes by the middle of next year. So while the group's copper output is likely to be flat this year, UBS is forecasting an 11 per cent increase in 1999 on the back of this extension. The icing on that cake will be the likelihood of more discoveries.

UBS are leaving their earnings figure for this year unchanged at $1.23bn, putting the shares, up 5p at 950p, on a forward multiple of 18. That blue-chip rating is fully deserved. Hold.

Lex moves

up a gear

It has been a difficult transition for Lex from flamboyant Sir Trevor Chinn's US electronics to Volvo imports conglomerate of the early 1990s to a more focused, UK-based motor group with an earnest, numbers man at the helm. Less fun perhaps, but ultimately what the City likes.

Lex's shares, which traded at 554p three years ago have taken a pasting in the meantime but yesterday's 12p rise to 343.5p underlined a palpable sense of relief that the company has finally pointed itself in a sensible direction. Profits for the year to December were impressive enough at pounds 51.4m, up from pounds 42.2m.

Earnings per share of 31.3p were 14 per cent higher than 1995's 27.5p and a final dividend of 9.6p made a full-year total of 16p, a 1p rise.

But it is the strategic direction that catches the eye at new-model Lex, with its alarmingly youthful new chief executive Andrew Harrison dividing its businesses into those that are firing on four cylinders and need building, those in dire need of a service and a handful of new operations itching to tear up their L-plates and try their luck on the corporate motorway.

Those in the first group include the leasing arm, Britain's largest, which still appears to have plenty of growth. The Hyundai importership has got over initial teething problems; Multipart has good skills which could be used elsewhere in the group and Lex's position in lift trucks is strong.

The challenges lie in the other two areas, however. Car retailing's returns are below its peers and, by the company's own admission, inadequate. The truck market is also oversupplied and in need of attention. The new businesses - autocentres, bodycentres and used car sales - need to grow but the City welcomed the suggestion yesterday that Mr Harrison will only do so when he is convinced the formulas are right.

On the basis of Panmure Gordon's forecast of pre-tax profits this year of pounds 58.5m and pounds 66.8m next time, the shares trade on a prospective price/earning ratio of nine. Lex is never going to trade on the same sort of rating as its more flexible, entrepreneurial peers like Reg Vardy, but it looks cheap none the less. Good value.

A hat-trick

for Wembley

Wembley grabbed a hat-trick yesterday with its first dividend since 1992, a return to the black at the full year and better-than-expected profits. Not bad for company on the brink of extinction a few years ago.

The shares perked up 9.5p to 405p, though it is worth remembering that they are still a tenth of their value in 1992.

Overseeing Wembley's recent rehabilitation has been Claes Hultman, the Eurotherm chief executive who was recently reinstated after a board room bust-up resulted in his temporary ousting. The massive re-financing of 1995 has been followed by the re-negotiation of the company's bank agreements on more favourable terms. All this has removed the drag of the group structure from the operating activities which have delivered improved profits for the past four years.

Yesterday's figures continued the good news. Pre-tax profits of pounds 17m compared with the previous year's pounds 8m loss. The Wembley complex, which still accounts for half group profits, performed strongly as did the US track venues.

Wembley hosted 29 events last year including 22 sporting fixtures and concerts by The Eagles and Tina Turner. U2 are already pencilled in for this year.

The only problem areas was UK greyhound tracks where performance is still being hampered by competition from the National Lottery.

Wembley's nomination as the preferred location for the National Stadium will help the company though the financial details of the deal have yet to be sorted out.

Wembley has been a huge disappointment for many investors before but with strong cash flow and good management it looks in better shape than for some time. On 1997 forecasts of pounds 27m the shares trade on a forward rating of 11 which is reasonable value.

Suggested Topics
Life and Style
tech
Arts and Entertainment
Robin Thicke's video for 'Blurred Lines' has been criticised for condoning rape
music
News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Matt Damon as Jason Bourne in The Bourne Ultimatum (2007)
filmMatt Damon in talks to return
PROMOTED VIDEO
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Life and Style
Bono and Apple CEO Tim Cook announced U2's surprise new album at the iPhone 6 launch
tech(but you can't escape: Bono is always on your iPhone)
Sport
FootballFull debuts don't come much more stylish than those on show here
Arts and Entertainment
Fringe show: 'Cilla', with Sheridan Smith in the title role and Aneurin Barnard as her future husband Bobby Willis
tvEllen E Jones on ITV's 'Cilla'
News
i100
Sport
Tim Wiese
sport
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
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

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

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

Training Coordinator / Resource Planner - City, London

£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

Day In a Page

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
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week