Rio Tinto Ltd Update: Bernstein names Top Pick for European Metals and Mining
- Firm notes fundamental supply/demand forces have strong potential to keep delivering above-consensus commodity prices (SCBe vs. consensus +15%, +23% and +32% in 2014, 2015 and 2016, respectively) and Rio's cash generation to continue surprising the market. Top line surprises combined with Rio throttling back on capex will drive a gap between cash flow generation and outflows. Firm sees no reason why the resultant de-gearing of Rio's balance sheet should not see its dividend double. Rio offers 17% real return vs. nominal sovereign debt yield of 4%. Firm notes Rio has one of the highest quality industrial asset bases in the world and, importantly, it will be impossible to inflate away the Pilbara.