Rio Tinto Plc: Company Overview, Competitors, and Strategies

Answer 1.
Rio Tinto Plc that was incorporated on 30th March, 1962 deals with the metals and
mining sector and is focussed on processing and mining of mineral resources. The company
has 4 segments – minerals and energy, diamonds and copper, aluminium and iron ore. The
company’s main strategy is to concentrate on 4 Ps – performance, portfolio, partners and
people. Main competitors of the company are BHP Billiton and Altura Mining Limited.
Answer 2
a. Stock beta – the calculated beta of the company is 0.269. Generally beta signifies the
systematic risk and volatility of a stock. Beta lower than 1 represents that the
company’s stock is less volatile as compared to the market. Therefore, the beta of the
company that is 0.269 indicates that the company’s stock is 73.10% less volatile as
compared to the market.
b. Cost of equity of the company is 4.06%.
c. The stock price is 58.93 as per the 1-stage DDM model and the price of the stock as
per the 2-stage DDM model is also 58.93. As per 1-stage DDM model the intrinsic
value of the share is 156.074 whereas the intrinsic value of shares as per 2-stage DDM
model is 388.90. However, under both the method the share is underpriced. From the
company’s aspect the 2-stage DDM model is most appropriate as the intrinsic value
of shares as per this model is more as compared to 1-stage DDM model and the
dividend paid by the company are fluctuating. From the investor’s aspect the share of
the company shall be purchased now as the shares are under priced.
d. The stock price is 58.93 as per the PE method and the intrinsic value as per this
method is 69.927. Hence, as per PE method the share of the company is underpriced.