Rio Tinto shares were marginally lower on Wednesday after the diversified miner said profits and cash generation fell in 2023 due to lower commodity prices.

Cash generated from operating activities fell 6% to $15.1bn in 2023 compared to 2022 and free cash flow sank 15% to $7.6bn. It’s worth bearing in mind Rio Tinto and other miners are highly cyclical and earnings fluctuate significantly year-to-year. Rio Tinto generated $25.1bn in cash from operations in 2021.

EPS fell 12% to 725 cents per share in 2023 while increasing copper production by 3%, highlighting how metal prices dictate earnings.

The impact of ongoing disruption in the Chinese economy was the main culprit, as lower demand for raw materials weighed on commodity prices.

Lower profits inevitably led to lower dividends for the full year, but only marginally. Rio Tinto paid out $7.1bn in dividends, equating to 435 cents per share, which still makes the miner a serious income play. The company has a 60% payout policy.

Despite slowing profitability, analysts remained positive on Rio Tinto shares citing its low valuation on an earnings basis and very respectable dividend yield.

“Rio Tinto delivered another solid operational performance in the 2023, although financial results were slightly impacted by lower commodity prices. Against this backdrop, the 60% dividend pay-out ratio and maintained capex guidance reinforces our favourable view on the company’s conservative capital allocation policy,” said Andrew Duncan, Senior Equity Analyst at Killik & Co. 

“Rio Tinto shares trade on 8.1x 2024 consensus earnings estimates with an estimated ordinary dividend yield of 7.3% in 2023, and we reiterate our Buy recommendation. (Buy).”

Although lower commodity prices eroded profit over the past year, Rio Tinto remains committed to expanding its portfolio, ready for future growth when underlying prices eventually pick up.

“We are making clear progress as we shape Rio Tinto into a stronger and even more reliable company. By focusing on our four objectives, we are building a portfolio that is fit for the future – including our Oyu Tolgoi underground copper mine in Mongolia and the Simandou iron ore project in Guinea,” said Rio Tinto Chief Executive Jakob Stausholm.

“We will continue paying attractive dividends and investing in the long-term strength of our business as we grow in the materials needed for a decarbonising world.”

AIM-quoted pawnbroker H&T (LON: HAT) is acquiring the trading assets of Essex-based rival Maxcroft Securities for £11.3m. The share price is 3.4%n higher at 382.5p.

Maxcroft has a store in Ilford that has been trading for four decades. The pledge book is worth £6.1m.

Maxcroft has a different client make-up to H&T because it provides working capital to the self-employed and small businesses. The average size per customer is £4,023. Maxcroft could help H&T grow these activities in its current operations.

Pricoa Private Capital is providing £25m in additional financing for the operations. There is £10m lasting until February 2029 and £15m due in February 2031. This takes total funding to £85m. Some of the new capital will be used to pay down the revolving capital facility with Lloyds.

Net debt was £31.6m at the end of 2023 and even after the acquisition there should be £30m of headroom.

BAE Systems shares were weaker on Wednesday after the defence company announced very respectable revenue and profit increases in 2023.

The company has been the beneficiary of increased defence spending globally, especially by the US, and sales rose 9% in 2023 to £25.3bn while underlying operating profit rose 9% to £2.7bn.

Despite BAE System releasing robust numbers for 2023, shares were trading down 2.5% at the time of writing on Wednesday. This is likely a result of traders booking gains in the stock, taking a ‘buy the rumour, sell the fact’ approach to BAE shares, which are up 34% over the past year amid expectations of strong defense spending.

“BAE Systems continues to move from strength to strength, with both its full-year revenue and underlying operating profits coming in ahead of its prior guidance,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“The group manufactures heavy-duty military equipment like fighter jets, aircraft and submarines, and recent global events are keeping demand for its products strong. Despite being a UK-based company, a whopping 42% of its sales came from the US last year, making it the largest single contributor. On an absolute basis, US military spending trumps any other country in the world, so having a large exposure here is proving very beneficial and has helped the group bring in a record £37.7bn worth of orders in 2023.”

BAE Systems now has a record £69.8bn backlog driven by order intake of £37.7bn during 2023.

“The record order intake and backlog also gives the impression that there is another solid year of growth to come from the firm in 2024 and with a bump up in the dividend and more buybacks coming, shareholders will unlikely be going anywhere given the handsome returns the shares have already generated,” said Adam Vettese, market analyst at eToro.

After announcing a £1.5bn share buyback in August last year, BAE Systems increased shareholder returns by hiking the dividend by 11.1% to 30p for the full year.

At the current share price of 1,222p, BAE Systems’ dividend yields 2.4%.

Domino’s Pizza shares delivered a substantial gain on Tuesday after the pizza delivery company received an upgrade from equity analysts at Jefferies.

Jefferies upgraded Domino’s Pizza shares to ‘buy’ from ‘hold’ and raised their price target to 430p from 410p. The Domino’s Pizza share price was 6% higher at the time of writing.

“We see upside from higher growth, supported by our regional store screening analysis,” Jefferies said in a note.

Domino’s is expanding its footprint across the UK, ensuring more areas are covered by an outlet, which will likely lead to additional revenues in the future.

“Domino’s Pizza got a boost from a positive broker note whereby Jefferies upgraded its rating on the stock from ‘hold’ to ‘buy’, citing new management, improved growth prospects and easing cost inflation,” said Russ Mould, investment director at AJ Bell.

“It might feel as if there is a Domino’s store in just about every major town and city in the UK, but Jefferies is confident it can add a further 360 stores and make money from them. The idea of paying £20 for a takeaway pizza might give some people the chills yet Domino’s has shown there are still ways to shift large volumes even when the economy is going through a more lacklustre period.”

The FTSE 100 reversed early losses on Tuesday as a strong session for Barclays and InterContinental Hotels helped support the index.

London’s leading index had started the session in the red, with miners dragging the index lower as copper prices fell. However, traders saw the dip in the mining sector as a buying opportunity, and miners trended higher off their worst levels as the session progressed.

An improvement in the miners compounded substantial gains for Barclays and InterContinental Hotels, and the FTSE 100 was trading 0.15% higher at the time of writing.

Barclays stole the headlines after the UK banks announced a £1bn share buyback and £2bn in cost-cutting measures. These two developments helped mask falling profit in the last quarter and declining net interest margins. The bank also said it would return £10bn to shareholders by 2026.

“There is a common theme among companies: increase dividends and cut costs to keep shareholders happy. Staff might not appreciate this strategy as it means they may have to do additional work for the same pay, but running a leaner machine is the playbook for corporates when there is an uncertain economic outlook,” said Russ Mould, investment director at AJ Bell.

“Barclays is the latest to follow this path as it announces yet another business reorganisation, a lower cost-to-income ratio target and a goal to return £10 billion to shareholders via share buybacks and dividends over the next three years.

“The news has gone down well with the market and has helped Barclays’ share price burst back to life after a long period in the doldrums.”

Lloyds and HSBC will report earnings later in the week.

InterContinental Hotels

InterContinental Hotels staged a quiet recovery from the pandemic and is now in full-blown growth mode, with revenue rising 17% in 2023 compared to the year prior. Growth was robust across North America and Europe while Greater China stormed ahead.

The group plans further expansion in China with 500 hotel openings to add to its 700 already in place. This would make Greater China a substantial part of IHG’s business in terms of room numbers.

“Safe to say the pandemic hangover is truly over for Intercontinental Hotels Group with over $1bn on its way back to shareholders via buybacks,” said Adam Vettese, analyst at eToro.

“Despite the cost of living crisis, it seems there has been no lull in demand for leisure spending with travel stocks in general having an outstanding 2023. Along with a portfolio of brands consumers can know and trust, this helped IHG shares rocket 68% last year.

“We expect to see macro conditions begin to ease up, which certainly will not stifle the appetite for leisure spending. In fact, with more disposable cash in consumers’ pockets as inflation continues to ease, it’s quite likely we will see the firm build on its 2023 success.”

Predator Oil & Gas shares sank on Tuesday after the company ran into trouble in phase 1 of the rigless testing of its onshore gas asset.

Predator said rigless testing with small perforating guns encountered formation damage and will now pursue phase 2 testing using Sandjet. The company said they were confident the next stage of testing would establish gas flow.

Predator has encountered operational constraints in recent months and rescheduled works as a result. Today’s long-awaited update will not have been the one investors – who will now await further testing results – were hoping for.

The company had previously alluded to phase 2 being the critical stage in testing but that has not softened the blow for investors.

“The Phase 1 rigless testing programme has confirmed our long-standing plans to use Sandjet to better target a number of zones of interest identified by the NuTech petrophysical interpretation. The presence of potentially deep formation damage caused by heavy drilling mud has re-confirmed the necessity to test these zones for which the wireline logs are likely to have been impacted by the invasive drilling mud,” said Paul Griffiths, Executive Chairman of Predator.

“We are very confident that we can design the Sandjet testing parameters to extend beyond the zone of formation damage.”

Investors appear not to share this confidence and shares were down over 30% at the time of writing.

The company said there were no changes to the discretionary working capital available to carry out the testing programme.

Predator did not, however, say whether the working capital available would be enough to complete the planned programme or, indeed any additional work required in light of today’s setback.

There is no suggestion Predator is facing capital constraints but to mention available working capital alongside today’s disappointing developments would suggest the company is conscious of funding requirements.

“Resources estimates remain unchanged and there are no changes to available discretionary working capital to carry out the Sandjet testing programme. We are however fully aware that we need to flow gas from our main zones in the most effective manner after accounting for formation damage, and we have confidence in Sandjet achieving that objective,” Paul Griffiths said.