Broker snap: Rio a viable alternative to BHP

20th Aug 2009 12:42

Interim results from Rio Tinto came in slightly below market expectations but Jonathan Jackson, head of Equities at Killik & Co, believes that the group is broadly delivering on a number of commitments made at the end of last year.Jackson is a lot more comfortable with the current level of financial gearing. 'Although net debt stood at $39.1bn as at 30 June, this fails to reflect significant inflows since the balance sheet date - rights issue ($14.8bn net) and disposals ($3.7bn announced year to date) - which will leave net borrowing nearer $20bn by the year-end, with a further $5.8bn to come from the BHP Billiton JV [joint venture] next year,' Jackson maintained.The overall tone of the statement was more upbeat, in Killik's view, than in previous updates and optimistic noises about resuming dividend payments should be interpreted as a positive sign of long-term confidence. Killik maintains a preference in the sector for BHP Billiton, 'given its high quality asset base, strong financial position and growing dividend policy,' but considers Rio Tinto a viable alternative bearing in mind 'it currently trades on a discount valuation to the peer group.'