Broker tips: Rio Tinto, Reckitt Benckiser, Xchanging

13th Dec 2010 13:58

Nomura's 2011 forecasts for Rio Tinto are ahead of consensus as the broker expects average realised iron ore prices to rise substantially more. The broker sees supply growth limited to 9% as increasing shortages of skilled labour and environmental issues continue to delay large expansion projects, "which should push up the theoretical deficit to around 50m tonnes," says analyst Paul Cliff. While consensus estimates are for a price increase of around 15-20% on 2010 levels, the broker foresees a sharper rise of 40% reflecting the tightness in supply. Also, with Chinese steel production continuing to grow, keeping demand ahead of supply growth and supporting high prices, the broker confirms its 'buy' rating on the shares. Broker Panmure Gordon has expressed its approval over Reckitt Benckiser's Indian acquisition as the group enters one of the fastest growing healthcare markets in the world. The provider of consumer healthcare and household products announced Monday that it has acquired the privately owned Indian over-the-counter (OTC) and healthcare business Paras Pharmaceuticals for £460m. The list of other bidders - including GlaxoSmithKline, Sanofi, Novartos and J&J - highlights the "growing significance of the Indian healthcare market," says the broker. The broker adds that the shares are currently trading on a price-to-earnings ratio of 15.7, and reiterates it 'buy' recommendation and 3,800p target price.Panmure Gordon continues to believe the risk profile of business processing outsourcing specialist Xchanging remains high, retaining its cautious stance on the stock. "Until we see real signs of recovery in the business we are likely to remain cautious, and therefore maintain a 'hold' recommendation," adds the broker. Panmure has reduced its target price from 140p to 96p, equating to six times its newly downgraded 2011 estimated earnings per share figures.