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Deutsche Bank downgrades Rio Tinto after re-rating
Deutsche Bank downgraded Rio Tinto to 'hold' from 'buy' on Monday following a significant rebound for the sector through the second quarter.
The bank, which left its 4,700p price target unchanged, noted that the shares have re-rated versus peers following a successful strategy of asset sales, deleveraging and high cash returns.
"We think the medium term risks to iron ore demand will limit the re-rating potential from here. High cash returns should continue to provide valuation support; following recent divestment announcements, we have increased our 2018/19 buyback estimates from around $2.9/3bn to $4.4/5.2bn."
Deutsche Bank said that while some of the bear scenarios on rapidly rising scrap consumption are premature, Chinese iron ore import demand should peak around 2020, limiting growth potential from the majors. As a result, it has cut its iron ore production assumptions for Rio in 2021 and beyond from more than 380mt to a more gradual creep above 360 metric tons per annum.
At 0950 BST, the shares were up 0.1% to 4,425.50p.
The bank, which left its 4,700p price target unchanged, noted that the shares have re-rated versus peers following a successful strategy of asset sales, deleveraging and high cash returns.
"We think the medium term risks to iron ore demand will limit the re-rating potential from here. High cash returns should continue to provide valuation support; following recent divestment announcements, we have increased our 2018/19 buyback estimates from around $2.9/3bn to $4.4/5.2bn."
Deutsche Bank said that while some of the bear scenarios on rapidly rising scrap consumption are premature, Chinese iron ore import demand should peak around 2020, limiting growth potential from the majors. As a result, it has cut its iron ore production assumptions for Rio in 2021 and beyond from more than 380mt to a more gradual creep above 360 metric tons per annum.
At 0950 BST, the shares were up 0.1% to 4,425.50p.
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