The broker has reviewed its assumptions and forecasts for Rio, including marking to new iron ore price forecasts. This leads to a valuation increase to an enterprise multiple of 5.5x for FY20, in line with global peers.
Target rises to $92.95 from $85.66. If the broker used spot iron ore that value would be $171.96 — not indicative of its true value but indicative of the extent of the upgrade cycle, the broker suggests.
The greatest uncertainty lies with the Oyu Tolgoi underground project, but otherwise Rio is in “great shape”, albeit well valued. Hold retained.
Target price is $92.95.Current Price is $104.63. Difference: ($11.68) – (brackets indicate current price is over target). If RIO meets the Morgans target it will return approximately -13% (excluding dividends, fees and charges – negative figures indicate an expected loss).