Key Morningstar Metrics for Rio Tinto
- Fair Value Estimate: GBX 6,500
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: None
- Morningstar Uncertainty Rating: Medium
What We Thought of Rio Tinto’s Earnings
Rio Tinto’s RIO 2025 underlying NPAT is stable on 2024, at around USD 10.9 billion or USD 6.69 per share. The USD 2.54 fully franked final dividend to be paid in April is up 13% on a year ago, but total dividends of USD 4.02 are also flat, with the payout again at the top of its 40% to 60% target range.
Why it matters: The result is similar to our expectations. Pilbara iron ore and copper unit cost guidance is also broadly in line, though rising costs for Pilbara likely explain the subsequent 3% fall in its share price. Management affirmed production and capital expenditure guidance.
The bottom line: We reiterate no-moat Rio Tinto’s AUD 125 fair value estimate. Shares screen as 30% overvalued, likely due to strong copper and aluminum prices, which have more than offset the falling iron ore price. Though all three metals are materially higher than our respective midcycle assumptions.
Big picture: We are glad it didn’t surrender to the very bullish narrative around copper demand and prices and overpay for no-moat Glencore. We hope this discipline continues. Given its strong balance sheet, we favor higher dividends in the absence of value-accretive investments or acquisitions.
- And we don’t think it needs to undertake large acquisitions just to grow. In relation to its major commodities, we forecast iron ore and copper volumes to grow 18% and 14%, respectively, in the five years to fiscal 2030. We expect aluminum volumes to rise by about 5%.
- However, rising volumes are more than offset by assumed lower prices, and we forecast a negative five-year EPS compound annual growth rate of 2%.
Between the lines: As well as optimism over rising demand for use in decarbonization and electrification, the copper price is being supported by traders moving copper to the US to try to get ahead of expected higher tariffs. Increasing warehouse stocks in the US are creating a shortage elsewhere.
