Equities and Investment: Comparing Rio Tinto and Macquarie Group

This report provides a comparative analysis of two companies, Rio Tinto and Macquarie Group, focusing on their performance in the stock exchange market. The report examines various factors influencing company performance, including macroeconomic conditions, industry life cycles, government policies, and internal company strategies. It details the reasons behind Rio Tinto's underperformance, such as rising oil prices, ex-dividend trading, negative ratings from financial institutions, and production disruptions due to extreme weather. Conversely, the report highlights the success factors of Macquarie Group, including its diversified income streams, effective management of regulatory issues, and investor confidence. The analysis emphasizes the significance of factors like inflation, oil prices, labor costs, natural calamities, and interest rates in influencing investment decisions. The report concludes by underscoring the importance of considering these multifaceted elements when evaluating companies in the stock market.

Running Head: Equities and Investment
Equities and Investment

Equities and Investment
PART II
(a) The performance of any company in the stock exchange market are governed by
many factors which may include macroeconomic conditions prevailing in the World
or country, life cycle of the industry in which the company is operating, the policies
issued by the government, the internal policies of the company etc.
Now, we will discuss the factors impacting the performance of the company in the
stock exchange market. For this purpose, we will evaluate the performance of two
companies, one which performed best in the stock exchange market and the other
company who poorly performed in the market.
1. Rio Tinto (Poor Performer) –The Rio Tinto group is headquartered in London, United
Kingdom. It is a company which explore, mines and process the mineral resources all
over the World. It provides aluminium, molybdenum, copper, diamonds, gold,
borates, titanium dioxide, salt, iron ore and uranium. It also looks after the aluminium
production, primary aluminium smelting, bauxite mining, alumina refining and
ilmenite mining and provision of gypsum (Yahoo Finance, N.D.).
If we talk about its performance in the stock exchange market then the group has
performed on the downside and has upset the shareholders. There are many reasons
associated with the depicted performance. The first reason is, the inflation giving birth to
the rising oil prices. As a result, the iron ore miners were faced with higher fuel costs and
thereby, dropping down the profit of the company. Even, the cost of hiring contractors
became expensive. Overall, inflation, increased oil prices and the increased cost of
contractors adversely affected the profitability of the Rio Tinto group (Reuters, 2018).
Secondly, the price of shares of Rio Tinto group fell down by 6% because its shares were
trading ex-dividend in the month of March.2019 (Motleyfool, 2019). The third reason
which hampered the share price of the group was the rating given by Bank of America.
The Bank of America rated Rio Tinto Group on the stock market as “underperform”.
Earlier it was rated as “neutral” on the stock market by Bank of America. Bank of
America even reduced the group’s target price from 4770p to 4150p. As a result of all
these, Rio Tinto’s underlying income reduced by two per cent for the year 2018
(Miningcapital, 2019). Another reason behind price drop of Rio Tinto shares was the
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extreme weather in western part of Australia. Western part of Australia was hit by
cyclone Veronica. It really hampered the production of iron ore and as a result its
production from the mines located in Pilbara fell by nine per cent. Apart from this, in the
month of January 2018, Rio Tinto Groups’ production of iron ore declined by one fifth.
Even the fire in the same month and year had hampered the production of iron ores
(ABC, 2019). As a result, all these leaded to an unsatisfactory performance by Rio Tinto
Group in the stock exchange market.
2. Macquarie Group (Best Performer) – Macquarie Group is a company operating in
Australia, Europe, the Middle East, Africa, Americas and the Asia Pacific, founded in
1969 and headquartered in Sydney, Australia. This company provides diversified
services relating to finance which includes: Macquarie Asset Management (MAM),
Corporate and Asset Finance (CAF), Banking and Financial Services (BFS),
Commodities and Global Markets (CGM). Financial services relating to
infrastructure, agriculture, co- investments, real estate, partnerships etc. are looked
upon by Macquarie Asset Management. The MAM segment even provides solutions
for numerous asset classes which often include currencies, hedge funds, income,
infrastructure securities and multi- asset allocation. Asset management solutions like
healthcare, rail and mining tools, technology, vehicles, manufacturing, aircraft etc. are
provided to clients by Corporate and Asset Finance. The Corporate and Asset Finance
is also responsible for investment activities in the secondary market. Mortgages,
transaction and saving accounts, credit cards etc. products which falls into the
category of retail banking products are provided by Banking and Financial Services
(BFS). End-to-End offering such as fixed income, commodities, equities and foreign
exchange are delivered by Commodities and Global Markets (CGM) (Macquarie,
N.D.).
Now let us discuss about its performance in the stock exchange market. Macquarie Group
shares are being performing really well in the market and the reasons behind its success
could be many. Most of the reputed banks like Westpac Banking Corp, Australia and
New Zealand Banking Group, National Australia Bank Ltd and Commonwealth Bank of
Australia which are Big Four banks depend highly on Australian mortgages for the
purpose of generating income. However, Macquarie Group makes income from multiple
segments and therefore, its earning base is expanded worldwide. Example, Macquarie
group offers lease for aircraft which comes under corporate and asset finance
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(Motleyfool, 2019). The other major factor contributing to the continuous growth of
Macquarie Group is its ability to manage the Royal Commission issues and concerns,
resulting in better generated returns, which proves to be hard for the other established and
successful banks to manage and thereby stopping the banks to generate good amount of
returns (Motleyfool, 2019). The recent macroeconomic problems like, weaker economy,
low rates and lower local currency are actually posing as the major issues for the
investors of different companies but the investors can expect a good news, if they are
investing in Macquarie Group. The asset class of the group consist of infrastructure, real
estate and fixed interest which usually notices a rise in their valuation at the time of lower
interest rates. So, the investors can expect a higher return as a result of increased profit of
the company. The investors’ confidence in the company is another reason for its share
price to go up and this confidence is the end result of the company’s performance in terms
of its assets which have gone up to $200 billion in 2019 from $5 billion in 1996 (year of
listing on ASX).
Therefore, the companies performing best in the stock exchange market do not solely
depends upon its successful operations but rather it is often affected by inflation, oil prices,
labour cost, ex-dividend, natural calamities, interest rates, legal policies, dividend distribution
etc. So, the investors often look at these factors before making any kind of investment related
decisions.
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References
ABC, (2019).Rio Tinto production hit by Cyclone Veronica; Oil Search earnings fall on
weaker oil prices. [Online]. Available 29 April, 2019 https://www.abc.net.au/news/2019-04-
16/rio-tinto-iron-ore-cyclone-veronica-oil-search-earnings/11019760
Macquarie, (N.D.). Company Profile. [Online]. Available 29 April, 2019
https://www.macquarie.com/au/about/company/
Miningcapital, (2019).Rio Tinto shares fall as Bank of America downgrades stock on limited
catalysts. [Online]. Available 29 April, 2019
https://www.miningcapital.com/companies/news/215520/rio-tinto-shares-fall-as-bank-of-
america-downgrades-stock-on-limited-catalysts-215520.html
Motleyfool, (2019). Is Macquarie share price a buy. [Online]. Available 29 April, 2019
https://www.fool.com.au/2019/01/03/is-the-macquarie-share-price-a-buy/
Motleyfool, (2019). Why the Macquarie share price continues to soar. [Online]. Available 29
April, 2019 https://www.fool.com.au/2019/02/03/why-the-macquarie-share-price-continues-
to-soar/
Motleyfool, (2019).Why the Rio Tinto share price could sink lower today. [Online]. Available
29 April, 2019 https://www.fool.com.au/2019/03/07/why-the-rio-tinto-share-price-could-
sink-6-lower-today/
Reuters, (2018). Rio Tinto falls as profit miss highlights cost concerns. [Online]. Available 29
April, 2019 https://www.reuters.com/article/us-rio-tinto-results/rio-tinto-shares-sink-after-h1-
profit-miss-adds-1-billion-to-share-buyback-idUSKBN1KM3V1
Yahoo Finance, (N.D.). Rio Tinto Company profile. [Online]. Available 29 April, 2019
https://finance.yahoo.com/quote/RIO.AX?p=RIO.AX&.tsrc=fin-srch
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