Rio tipped to unveil buy-back

DESPITE a slump in its two biggest earnings, iron ore and copper, Rio Tinto is expected to make good on its promise to boost returns when it reports its full-year results this evening.
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Rio Tinto CEO Sam Walsh. Copyright Rio Tinto 2014

Kristie Batten

At an investor day in December, Rio CEO Sam Walsh said boosting returns would be the focus for the company this year and pledged to make an announcement with the results, due out after market close.

“Looking out over the next five years, we expect to generate strong free cashflow and we remain committed to materially increase cash returns to shareholders,” he said at the time.

Rio is expected to post full-year underlying earnings of around $8.9 billion today

Most analysts are tipping an increased dividend, as well as a buy-back.

Analyst consensus is an increased dividend of $2.12 per share, up from $1.92 last year.

UBS is expecting a $2.20 per share dividend and JP Morgan has flagged a $2.08 dividend, while RBC Capital Markets predicts a lower dividend of $1.97.

“Our FY14 full-year dividend forecast of $1.97/share is the low end of the street, but we have modelled up to $3 billion in capital returns over the coming 12 months,” RBC said.

“We think Rio needs to commit to capital returns of between $1-1.5 billion per annum over a multi-year period in order to meet market expectations.”

UBS is tipping net debt to drop to $15.4 billion from $17.6 billion and gearing to fall to 20.3% from 24.8%.

“We think this level will be key in determining the form and scale of capital management,” UBS said.

“We believe the market will be comfortable if Rio announces capital return with a scale of at least $2-2.5 billion, either in the form of a special dividend, or an off-market ltd buy-back or an on-market plc buy-back.”

JP Morgan has flagged a $1.5-2 billion buy-back over the next year.

Rival BHP Billiton disappointed the market in August when it failed to announce a buy-back with its full-year results.

Analysts will also be looking for further cost savings, with lower oil prices and a weaker Australian dollar offsetting commodity price falls.

“With an easing in the Australian labour market tightness and an even more rigorous focus on costs given the fall in commodity prices, we expect Rio to announce additional cost-out measures and perhaps targets for 2015,” UBS said.

Rio shares closed 1.4% down to $A59.80 yesterday.