Broker snap: Buy-back brings comfort at Rio Tinto

11th Feb 2011 12:57

Credit Suisse says that Rio Tinto's recent $5bn share buy-back should settle concerns over its use of cash, keeping the stock on its 'Focus List'.The broker says that the buy-back, announced Thursday, is a good sign that the mining giant is willing to increase cash returns alongside a capital expenditure-intensive growth strategy, and estimates that it will be 2-3% earnings per share-accretive once complete."We continue to believe that Rio offers significant re-rating potential from the majors into a synchronous steel/iron ore demand recovery this year," the broker says."Looking back to 2004-07, despite a strong uplift in cash flows it took a year or two before free cash flows were matched by cash returns as confidence in the cycle improved."With net debt forecast to be around $16bn by the end 2012, it leaves further room for higher dividends and buy-backs in 2011-12. An 'outperform' rating and 6,000p target price are kept.