Exane BNP Paribas has downgraded its stance on Rio Tinto PLC (LON:RIO) to ‘neutral’ from ‘outperform’ while maintaining a 4,000p target price and said it now has a marginal preference for blue chip mining rival BHP Billiton plc (LON:BLT) at this point.
In a note to clients, the French bank’s analysts said: “Rio is a re-rated stock compared to a year ago. Its cash returns mantra is now well understood and we think the recently announced sale of the coking coal assets (for impressive valuations ahead of market expectations) concludes the most active period for divestments.”
READ: Rio Tinto declares record dividend and US$1bn buyback as full-year profits jump 69%
They added: “Spot valuations can of course be volatile but it is difficult at this juncture to argue for further consensus earnings upgrades or for multiple expansion since it screens as more expensive than peers. It is hard to see the stock outperforming peers.”
The analysts continued: “There is also the risk of acquisitions being made given the strength of the balance sheet and relative lack of late cycle commodity exposure; it may choose to address this portfolio shortfall despite previous caution over expensive M&A multiples.”
They concluded: “We adjust our B-Riometer dial in favour of BHP Billiton for the first time based on a more favourable catalyst landscape in 2018.”
In mid-morning trading, Rio Tinto shares were down 1.4% bat 3,593.5p, while BHP Billiton shares were off 0.9% at 1,397.4p with miners impacted by the Trump trade war escalations.