Broker snap: UBS hikes Rio Tinto target after H2 beat

10th Feb 2012 11:13

UBS has raised its target price for mining giant Rio Tinto by 7% and reiterated its buy recommendation after second half figures came in above expectations.On Thursday, Rio reported that second half underlying net income (which excludes a $9bn impairment charge mostly relating to its aluminium assets) was $7.8bn, down 5% year-on-year but well ahead of consensus expectations of $7.5bn and UBS's $7.4bn forecast."Rio is 'mindful of short term uncertainties', though positive medium-term due to continued urbanisation of emerging economies," UBS notes.The broker expects net income to increase by 5% in 2012, helped by iron ore and a roll-off in pricing contracts in mineral sands products. Forecasts are 10% above consensus. The new 5,700p target price (up from 5,300p previously) is based on a 10% discount rate to net present value (NPV) which has increased as UBS has rolled it forward 12 months. "Rio remains our preferred diversified play, trading at discount to BHP [Billiton]/ 33% discount to NPV. Near-term we expect performance to be driven by macro newsflow/risk appetite," the broker said.BC