Today I’ll be discussing the investment potential of mining giant Rio Tinto (LSE: RIO), paper & packaging group Mondi (LSE: MNDI) and property group British Land (LSE: BLND). Should you be buying any of these blue-chips today?
Tough times
Along with other companies in the sector, mining giant Rio Tinto has suffered as a result of the fall in commodity prices over the last few years. The shares, trading at around 4,520p in the summer of 2011 are now priced below 2,000p. Full-year results announced last month revealed a $12.8bn drop in revenues to $34.8bn and a 51% decline in earnings.
A similar decline has been pencilled-in for this year, with analysts forecasting a further 49% fall in earnings for the year. However, 2017 should be better for Rio with our friends in the City predicting a turnaround. The expected result? Analysts are talking about 39% growth in earnings per share.
What’s the catch? Rio Tinto shares aren’t cheap, trading on 22 times forecast earnings for this year, but falling to 16 in 2017. Despite respectable dividend yields of 4.3% and 3.6% for the next two years, I think there are lower-risk investments with higher yields available elsewhere.
Slowing growth
Mondi is the best performing paper & packaging company in the FTSE 100, and also the worst. Come again? Actually, it’s the only paper & packaging company in London’s blue-chip index. And it’s been a good standard bearer for its product category in four out of the last five years with double-digit growth. But this is set to slow, with only a 3% rise in earnings pencilled-in for this year and next.
What about the valuation? The forecast P/E ratio is around 12 for the next couple of years, and this is consistent with the firm’s five-year average, so nothing to get excited about. But there is a respectable dividend on offer.
The company is expected to pay out 44.28p per share for the current year, rising to 46.44p for 2017, equating to yields of 3.4% and 3.5%, respectively. Does that make it an appealing buy? Maybe for some, but I don’t see much in the way of growth here and better yields can be found elsewhere.
Buying opportunity?
Shares in real-estate giant British Land have underperformed this year, losing 17% of their value in the last six months alone. The company’s fundamentals remain sound however, and I believe this is a temporary weakness in the share price and perhaps a buying opportunity for investors seeking income.
British Land currently trades on 20 times forecast earnings for the financial year just started, falling to 19 for the year ending 31 March 2018. This P/E rating is consistent with the recent past, and in my view doesn’t offer much upside potential.
But shares in property companies are all about the dividend and British Land certainly delivers in this area. Dividends are forecast at 28.53p for the year to 31 March, increasing to 29.81p next year, then 31.39p for fiscal 2018, offering prospective yields of 4.1%, 4.3% and 4.6%, respectively. This is one for income hunters.
Time to buy?
I think the mining sector is too volatile and too risky at the moment to be tempted by Rio, while Mondi just doesn’t offer enough growth or income to attract me currently. However British Land may be a contender for those looking for an income play in the property sector.