Broker tips: Rio Tinto, Clarkson
By Iain Gilbert
Date: Tuesday 14 Jan 2025
(Sharecast News) - Berenberg has named Rio Tinto as its top pick for 2025 among London's blue-chip diversified mining stocks ahead of what's set to be a volatile start to the year for the sector.
Ahead of Donald Trump's inauguration on 20 January, Berenberg predicts increased volatility in commodity markets with proposed trade tariffs on US imports from China "likely to keep a lid on commodity price upside, particularly for traditional global GDP bellwether commodities such as copper".
However, the broker added: "We take the view that the Chinese government can deploy more aggressive stimulus measures to support industrial output and its broader economy if the perceived tariff impact could have additional impacts on its economy."
As for specific commodity prices, analysts have taken a "cautious view" on copper prices due to a stronger US dollar and global trade risks, but remains more constructive for aluminium and zinc. Iron ore prices were expected to remain broadly stable, while gold prices will remain supported by central bank demand, geopolitical volatility and inflation risk, it said. Platinum was highlighted as a key winner for the year, with prices set to rally on "increasing supply tightness.
Rio Tinto, rated 'buy', has a more stable investment thesis and more attractive returns profile than BHP, Berenberg added.
Analysts at Canaccord Genuity hiked their target price on shipping firm Clarkson from 4,300.0p to 4,500.0p on Tuesday, stating the firm was "well-positioned" to ride out volatility.
Canaccord Genuity said trading has been supportive, with Clarkson's weighted forward order book delivering H2 weighted profits. As FY24 draws to a close, the analysts reckon Clarkson will have tripled pre-tax profits since FY19.
The Canadian bank also noted that unless Clarkson looks to move on any M&A activity or make larger internal investments, it sees higher than consensus dividend per share payouts. It also sees further scope for upside to its target price should Clarkson reinvest surplus cash into the careful expansion of its roughly 19% RoE business.
"Beyond FY24E, we think broker FOBs signal better ahead and evidence of a long-term potential super cycle as we see limited yard capacity (barely sufficient to replace ~2-3% of the global fleet p.a.) and the need for accelerated new build requirements to meet increasingly stringent environmental regulations," said Canaccord, which reiterated its 'buy' rating on the stock.
"We think share price upside factors include: 1) 'Show me' of DPS payout uplift, as we believe that DPS is a key share price driver (Fig. 6) but payout is low (FY23 at 37% vs. 2013-2021's 59%); and, 2) increasing proportion of ARR (and duration), which potentially exerts upward PER pressure."
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