Broker tips: Rio Tinto, Legal & General

17th Jul 2024 16:13

(Sharecast News) - Analysts at Berenberg lowered their target price on mining giant Rio Tinto from 5,800.0p to 5,700.0p on Wednesday following Q2 production results from the company.

Berenberg noted that Rio Tinto's Q2 production results resulted in the shares closing down roughly 2.3% on the day, driven by a guidance cut in alumina to 7.0m-7.3m tonnes due to gas supply issues, with mined copper production steered to the lower end of guidance at 660,000-720,000 tonnes and bauxite to the upper end at 53.0m-56.0m tonnes.

Iron ore production came in at 79.5m tonnes, a touch light versus Berenberg's 81.1m tonne estimate, with shipments of 80.3m tonnes a touch ahead of the German bank's 79.1m tonne estimate, as production and shipping at its Pilbara operations in Australia were affected by a train collision in mid-May

"We update our model for the Q2 production results and guidance changes, and make small adjustments to our estimates. This includes a slower-than-expected ramp-up of recycled aluminium production from Matalco, lower alumina volumes in H2 at its Gladstone operations (Australia), as well as higher H1 operating costs at its Pilbara operations. Our price target nudges lower to 5,700.0p per share and we remain hold-rated; the stock is trading on 0.92x NAV and 4.6x FY24 EBITDA," said Berenberg,

RBC Capital Markets has downgraded Legal & General from 'outperform' to 'sector perform' and cut its target price on the stock from 295.0p to 245.0p, saying that the pension risk transfer market has "los[t] some of its lustre".

Last month's strategy event at Legal & General, in which the new chief executive outlined growth investment initiatives for asset management, result in a "resetting" of earnings and capital generation expectations, according to RBC.

"The event also re-confirmed that PRT is core to the operating model (>50% of earnings to FY28E) - an area in which we expect new headwinds," the broker said.

While the UK PRT market remains attractive, emerging factors such as lower margins and new competition limit L&G's potential for outperformance, according to RBC, which also highlighted "cyclically low inflows" making the UK asset management sector challenging.

"Following the Jun 2024 strategy update, and recent emergence of disruptive forces in the UK bulk purchase annuity/PRT market, we make material cuts to operating profit/capital generation," said RBC. "While we are within the new company guidance ranges, we are below consensus, and see limited scope for LGEN to beat targets, in particular in FY24E. Given the lack of upcoming catalysts, and a valuation that is in line with the UK life peer group, we have less conviction on LGEN shares from here."