Rio Tinto Plc (RIO)

Rio Tinto Plc (RIO) is a leading mining and metal company listed on the London Stock Exchange. Its area of operations is categorised into three segments: finding, mining, and processing mineral resources. As per the company website, Rio employs around 47,000 workforces and operating in 35 countries across six continents. As on November-01-1973, shares of the Rio Tinto were admitted to the main market of the London Stock Exchange for trading. Aluminium Corp of China Ltd, BlackRock Institutional Trust Company, N.A., and Capital Research Global Investors are the major shareholders in the company. (Source: Thomson Reuters)

Recent Developments
In the exchange filing made by the group as on July 16, 2019, the group recorded that it has diluted its entire stake in the Rossing uranium in Namibia to China National Uranium Corporation Limited for an initial consideration of $6.5 mn and a contingent payment of up to $100 mn.

Financial Highlights: (FY18 $mn)

Source: Company filing.

In FY18, the company reported consolidated revenue of $40,522 million, which was $492 million above than FY17 data. Underlying EBITDA during FY18 stood at $18,136 million, and it was comparatively 2 per cent lower than 2017 data, on account of rising in energy cost and raw material cost. Net earnings for FY18 stood at $13,638 million, up by 56 per cent against FY17 data. Net Cash flow generated from operations stood at $11,821 million, down by 15 per cent as compared to the FY17 data, particularly led by higher tax payments in connection to their FY17 profit and unfavourable movement in the working capital. In FY18, the company generated free cash flow of $6,977 million, down by 27 per cent against FY17 data. The basic earnings per share surged by 62 per cent to 793.2 cents as compared to 490.4 cents reported last year (FY17). In FY18, the company’s ordinary dividend per share surged by 6 per cent to US 307 cents.

Stock Performance – 1 Yr

Daily Price Chart (as on July 18, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (as on July 18, 2019, at around 04:00 PM GMT), shares of the RIO Tinto Plc were quoting at GBX 4,785 and declined by 1.87% against the previous day closing price. In the year-ago period, the company registered a 52w high of GBX 5,039.0 and a 52w low of GBX 3,460.0, respectively.

Valuation Methodology
 

Conclusion
The group recorded strong performance in the FY18, with EBITDA margin during the year stood at 42.8% against the industry average of 16.5%, and operating margin was at 43.4% against the industry median of 11.2%. Also, the net margin during the year under consideration surged to 34.4% from 23.2% recorded in the year-ago period.

Also, at the current trading level, the stock is trading well above its 200-day simple moving price, which is a bullish indicator and suggests that could surge further from the current trading level.

The company delivered strong financial performance results primarily on account of increased commodity prices in the international market and accompanied by ramping up of its crucial projects. Therefore, based on the above rationale and valuation done using the above methodology, we have given a “Hold” recommendation at the closing price of GBX 4,876.0 (as on July 17, 2019), based on the 9.0x NTM Industry Median P/E (x) (approx.) on the FY19E Earnings per share (approx.).

Eve Sleep Plc (EVE)

Eve Sleep is London- headquartered e-commerce company. The Company has six products, including foam mattress, topper, pillow, sheets, protector and duvet. As on May-18-2017, shares of the EVE got listed on the AIM market of the London Stock Exchange for trading.

Pre-close Trading Update
As on the July-18-2019, the group recorded its trading update for the six months ended June-30-2019. The loss recorded in the H1 FY19 got halved on a YoY basis. During the period under review, group's underlying EBITDA loss narrowed to £5.9 mn against the loss of £11.9 mn recorded in the first half of FY18, driven by shifted refocus on just three markets, greater marketing efficiency and a reduction in overheads. At the end of the trading session, the net debt of the group stood at £12.5mn.

Financial Performance: FY18

Source: Company Filings

 During the period under consideration, the group’s revenue surged by 25% to £34.8 mn from £27.7 mn recorded in the year-ago period, driven by refocusing on the core markets in the H2 FY18. Gross profit margin during the year under consideration improved by 490 bps points to £18.4 mn. However, at the EBITDA standpoint, the loss widened to £19.2 mn from a loss of £15.1 mn recorded in the year-ago period, and Net Cash with the company also plunged to £6.0 mn from £26.9 mn recorded in the year-ago period. During the year under review, the EBITDA margin of the company stood a negative 52.0% against the industry median of 3.1%.

Stock Performance – 1 Yr

Daily Price Chart (as on July 18, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, at 04:52 PM GMT), shares of the EVE were quoting at GBX 7.55 and plunged approximately 12% in day’s session. In the year-ago period, shares have registered a 52w high of GBX 26 and a 52w low of GBX 5.1 respectively. On a YoY basis, the stock has plunged by approximately 66.15%.

Conclusion
Despite reduced losses at the operating levels in the first half of FY19, its shares are nose-diving at the London Stock Exchange. On a year-to-date basis, the share of the EVE was plunged by 14.15% and hovering below its 200-day simple moving average price, which indicates a downtrend in the stock price. The group is witnessing substantial retail headwinds and the intense competition. Therefore, based on the above discussion, we have given an “Avoid” recommendation at the closing price of GBX 8.80 (as on July 17, 2019).

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