The Investment Column: Asia crisis puts a dent in Rio Tinto
Friday 27 February 1998
When you're in a commodity business, however, certain basic factors - such as prices - are beyond your control. And since economic turmoil first rumbled across Asia last autumn, metal prices have slumped. The copper price, for example, has dropped by over a quarter to less than 80 cents a pound. Given that every 10-cent-a-pound fall wipes $100m off Rio Tinto's bottom line, it's no surprise that the company's shares slipped from pounds 10 to pounds 7 in just three months, although they have since staged something of a recovery. They closed up 22p at 812p yesterday.
Potential investors need to ask themselves two questions. First, to what extent will the Asian crisis dent the company's profits? Second, how much of that gloom is already reflected in the share price? Yesterday, Mr Wilson had a pretty good stab at convincing shareholders the crisis is not as bad as it looks. Although 40 per cent of Rio Tinto's sales are in Asia, half of that is in Japan. What's more, even though prices have dropped, sales volumes are still expected to rise in the coming year.
Nevertheless, the impact on economic growth in the West remains unclear. The drop in metals prices has also prompted Rio Tinto to rethink several potential investments, although it claims that all current projects are going ahead.
So the company is thinking of other things to do with its cash. Mr Wilson acquisition opportunities may pop up. Rio Tinto also has permission to buy back 10 per cent of its shares. In the UK, the company will have to wait until Advance Corporation Tax is abolished next year before it can return cash to shareholders. In Australia, however, it's more likely to do so sooner.
Uncertainty about macroeconomic conditions shows up in the spread of profit forecasts for the coming year, with rival analysts forecasting anything from a 10 per cent fall in profits this year to a 10 per cent rise - which translates into a forward p/e ratio of between 14 and 18. The 4 per cent dividend yield is some consolation, but for the time being these shares are effectively a punt on global economic conditions, and are no better than a hold.
- 1 Isis 'jihadi bride' claims forced sex with Yazidi girls is never rape because Koran condones it
- 2 Woman accidentally shoots herself in the head while posing for a selfie
- 3 Art Garfunkel calls Paul Simon a 'monster' with a Napoleon complex
- 4 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
Isis 'jihadi bride' claims forced sex with Yazidi girls is never rape because Koran condones it
Woman accidentally shoots herself in the head while posing for a selfie
Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
16-year-old girl beaten and burned alive by lynch mob in Rio Bravo, Guatemala
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
The day that Britain resigned as a global power
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
Gay marriage 'Bert and Ernie' cake bakery found guilty of discrimination in Northern Ireland
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...