Belfast Telegraph

Home News UK

Sunday newspaper share tips

The Sunday Telegraph

Rio Tinto's results last week signalled a marked turnaround after a turbulent past couple of years.

The largest iron-ore miner in the world recovered from a 2.43 billion US dollar (£1.45 billion) loss in 2012 - its first for 18 years - to post p re-tax profits of 3.51 billion US dollars (£2.1 billion) for 2013 and rewarded investors with a 15% increase in dividend.

It comes after new boss Sam Walsh announced a freeze in spending on new mining projects and put a hold on big takeover deals following a dire 2012, when it suffered hefty losses from its overpriced 39 billion US dollar (£23 billion) deal to buy aluminium miner Alcan.

The group was hit by a record 14 billion US dollar (£8.4 billion) write-down in 2012, with former chief executive Tom Albanese quitting last January in the wake of the dire results.

But under Mr Walsh, the mining giant notched up cost savings of 2.3 billion US dollars (£1.4 billion) last year, helping it on the road to recovery.

The mining group is also now digging more iron out of the ground than ever before, with production hitting a record 266 million tonnes in 2013, up 5% on 2012.

Shares have risen by a quarter since last July and are set to continue the strong run, with analyst forecasts suggesting Rio will increase pre-tax profits to 16.6 billion US dollars (£9.9 billion) in the year ahead.

Out of all the miners, Rio remains the best long-term bet.

Water utility Severn Trent reassured investors over the financial impact of the extreme weather last week, saying that performance remains in line with expectations and there was currently no material financial impact from the floods.

But there could be more troubled times ahead for the UK's second-largest water group.

It revealed that operating costs are expected to rise because of the effects of inflation and power costs, although it hopes this will be offset by efficiency improvements and allowed increases in the prices it charges customers.

Water regulator Ofwat determines the returns it allows each company to make and fired a shot across the water sector's bows when it announced a much tougher starting point for its regulatory review of prices for the period 2015 to 2020.

Ofwat will announce which water companies have qualified for fast-tracking, based on the appraisal of their business plans, in March. Draft determinations for fast-tracked companies will be published in April. For those whose pricing is deemed too aggressive, it will be August, with final determinations confirmed in December.

Dividends are barely covered by earnings and payouts could be reset at lower levels once the regulatory review is complete, which could create an income shock for investors.

Utility companies such as Severn Trent remain attractive for long-term investors as they provide inflation-linked income.

But until the review is complete, investors are advised to "hold".


From Belfast Telegraph