Few companies have enjoyed a post-Brexit bounce as much as international mining giant Rio Tinto (LSE: RIO), whose shares have jumped more than 20% since leave voters won the day. With dollar-denominated sales and little exposure to the UK economy, Rio seems an obvious bet for investors spooked by Brexit in the short term. But what are the company’s prospects over a 10Â or 20-year time horizon?
Rio will still have to grapple with the low commodities prices that have battered the industry, but I see reason enough to believe it will cope better than competitors. Net debt at the end of June had been whittled down to $12.9bn, representing a sustainable gearing ratio of 23% that was significantly better than rivals such as BHP Billiton or Anglo American.
Furthermore, although prices for major commodities remain low, Rio posted $1.5bn in underlying earnings over the past six months due to low-cost-of-production assets that generated more than $3.2bn in cash. Even with dividends cut to maintain balance sheet health through the down part of the cycle, shareholders are still set to receive at least 85p this year for a yield of roughly 3.4%.
With a healthier balance sheet than competitors, a bevy of world-class assets and dividends to boot, I reckon Rio will remain an attractive Brexit-proof investment for years to come.
Georgia on my mind
Investors put off by Rio’s highly cyclical nature might do well to take a closer look at Georgia Healthcare Group (LSE: GHG). GHG is the largest insurer and private medical health provider in Georgia and has been well received by the City with share prices up 60% since their November IPO.
Bullish attitudes towards GHG focus on the company’s impressive growth from modernising healthcare services in the fast developing Caucasian nation. Revenue over the past year leapt 22.5% year-on-year with profits surging ahead a full 78%.
With shares valued at a pricey 25 times forward earnings, shareholders will need this level of growth to continue for some time. But for those who aren’t put off by foreign small-caps, GHG may be worth a closer look for its impressive growth prospects, high dividend potential and considerable margins.
Deb, debts, debts
For the truly risk-hungry investor there’s always the option of West African producer Tullow Oil (LSE: TLW). Tullow comes with significant upside in the form of significant low-cost-of-production assets but on the flip side has a cripplingly high level of debt. How this will play out should become clearer in the coming months as the company’s massive new TEN field off the coast of Ghana reaches first oil.
The good news for Tullow is that the completion of this project will mean a significant fall in capital expenditure as well as the addition of some 11,000 barrels per day of production this year and 30,000 barrels per day in 2017. With operating costs per barrel expected to be around $8, cash flow should pick up considerably.
The bad news is that net debt has now risen to $4.7bn for a dangerously high gearing ratio of 62%. Even with the significant cash flow to come from TEN, debt of this level means dividends are a truly distant prospect, which is reason enough for me to avoid a company in as highly cyclical an industry as oil & gas.