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Blue-Chip

One Resources Stock Likely to Face Resistance at Current Levels - RIO

April 15, 2024 | Team Kalkine
One Resources Stock Likely to Face Resistance at Current Levels - RIO

RIO:ASX
Investment Type
Large-cap
Risk Level
Action
Rec. Price (AU$)

This report is an updated version of the report published on 15 April 2024 at Closing Market Price

Rio Tinto Limited (ASX: RIO)

Rio Tinto Limited is involved in the production of gold, copper, iron ore, aluminium, coal, titanium dioxide, borates, and minerals and metals.

Recommendation Rationale – SELL at AUD 132.550

  • Profit Booking: RIO’s share price surpassed Resistance 1 level recommended on 14 March 2024; and thus, offered a profit booking opportunity.
  • Overvalued Multiples: On a forward 12-month basis, key trading multiples (EV/EBITDA, Price/Earnings, and EV/Sales) are higher than median of Basic Materials’ sector.
  • Key Risks: RIO’s performance is susceptible to commodity price fluctuations, cost inflation, global economic slowdown, and geopolitical uncertainty among others.
  • Profit Decline: RIO's net profit declined by 19% YoY to USD 10,058mn in FY23 from USD 12,392mn in FY22, due to lower revenue.
  • Technical Standpoint: The momentum oscillator, 14-day RSI (~72.30) is in the overbought zone; and thus, price can face retracement in the short term.

RIO Daily Chart

Daily Technical Chart; Source: REFINITIV

Valuation Methodology: EV/Sales Approach (FY December'24E) (Illustrative)

 

Considering the expected Pilbara iron ore shipments and Aluminium Bauxite production in FY24, anticipated lower unit cost for copper in FY24, ongoing geopolitical tension, the stock might trade at a slight discount to its peers. For valuation, a few peers like OM Holdings Ltd (ASX: OMH), Macmahon Holdings Ltd (ASX: MAH), South32 Ltd (ASX: S32) and others have been considered. Given its current trading levels, recent share price movement, and risks associated, downside indicated by valuation, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the closing market price of AUD 132.550 as of 15 April 2024.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 15 April 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.

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