Broker tips: Rio Tinto, Ryanair, Segro
Analysts at Berenberg hiked their target price on mining giant Rio Tinto from 5,500.0p to 5,700.0p on Wednesday after the firm's fourth-quarter production efforts were broadly in line with their estimates.
Berenberg stated that after picking through Rio Tinto's update, it flagged that a one-quarter tie-in delay at its Gudai-Darri iron ore mine in Australia due to Covid-19 had put "some pressure" on flexibility, and while Rio met its shipments target for the quarter, it had to ramp up sales of SP10, a lower quality product, and shipped 75% more volume than at did in the previous quarter at 15.5mt - something the analysts think will likely have "a small lag effect" on fourth-quarter revenues.
The German bank, which stood by its 'buy' rating on the stock, also highlighted a one-year delay to first production at the Jadar lithium project in Serbia, now scheduled for 2027, was "not a surprise" given ongoing protests against the mine and the country's general election in April, and added that progress at its Oyu Tolgoi asset in Mongolia remains slow, and if anything was "disappointing" in the 2022 guidance.
As a result, Berenberg adjusted its model to reflect the quarter, which had a roughly 2% impact on earnings per share estimates for 2021. It also made tweaks for 2022, affecting EPS by 1%, but Berenberg's forecasts of a better product mix when Gudai-Darri comes on helped its 2023 earnings estimates.
Liberum upped Ryanair to 'buy' from 'hold' on Wednesday and lifted the price target to €19 from €17 as it took a look at the European airline sector.
The broker said Ryanair's "ambitious" medium-term growth plans, and its access to new aircraft deliveries, have seen it bet on a strong recovery in Summer 2022.
"Ryanair has positioned itself for a strong recovery in demand in summer 2022. Its new aircraft deliveries should allow it to gain market share from financially weaker and more cautious competitors," Liberum said. "Despite ongoing Omicron uncertainty, we see the current share price as an attractive entry level into a long-term structural winner."
More generally, the broker said the recurring theme when exiting past industry crises - of which there have been many over the last 25 years - is that the strong get stronger.
"The long-term structural winners have seen accelerated gains in the aftermath of periods of industry turmoil. Consequently, IAG, easyJet and Ryanair are our preferred picks," it said.
JPMorgan Cazenove upgraded Segro to 'overweight' from 'neutral' on Wednesday and lifted the price target to 1,450.0p from 1,310.0p as it argued that recent underperformance was a buying opportunity.
JPM said property has borne the brunt of the shift in sentiment towards value thus far in 2022. This has driven the recent underperformance of Segro, which was down 10% year-to-date versus the sector down 3%.
"FY21 will be a record year for logistics with capital and rental growth in 2H outpacing any HY period over the last decade, and results should provide a strong catalyst to drive a re-rating through 2022," the bank said.
"We believe the opportunity ahead remains attractive and upgrade our NAV forecasts and now sit 4%/6%/7% ahead of compiled company consensus for 21/22/23."
JPM also placed the shares on ‘Positive Catalyst Watch’ into the FY21 results, which are due on 18 February.