If you're looking to add a top resource company to your portfolio, today's match up in the Motley Fool's ASX World Cup may help you narrow down your choices as big iron ore miner Fortescue Metals Group Limited (ASX: FMG) takes on the mighty Rio Tinto Limited (ASX: RIO).
Let's have a look at the key stats:
|
Factor |
Measure |
Rio Tinto Limited (ASX: RIO) |
Fortescue Metals Group (ASX: FMG) |
| Size | Market cap |
$106.1 billion |
$12.6 billion |
| Operations | EBIT margin % |
15.5%¹ |
41%² |
| Growth | Five year NPAT CAGR |
-27% |
28% |
| Balance sheet | Debt/Equity ratio³ |
1.25 |
2.35 |
| Dividend | % Yield |
3.7% |
4.6% |
Notes: ¹Full Year to 31Dec 2013, ²Half Year to 31Dec 2013
Importantly, these numbers reflect past performance and not necessarily the current operating conditions. This is a point we will factor in throughout the match.
Operations:
Comparing EBIT margins for 2013, performance suggests Fortescue has the upper-hand with a giant EBIT margin of 41% to Rio's 15.5%. However the recent fall in the price of iron ore, now sitting as low as US$90 per tonne, puts these margins in doubt going forward.
Rio Tinto is arguably better positioned to cope because of the wider mix of resources it produces. Iron ore made up 50% of Rio's revenues in 2013, while Fortescue produced little else.
Goal: Rio Tinto.
Growth:
It's a similar story when it comes to earnings growth. Comparing compounded annual profit growth again suggests Fortescue should be the clear winner. Fortescue also has plans to significantly boost production, but under current conditions, and with news that Fortescue is offering discounted low-grade ore to Chinese steel mills, there are questions over the impact to earnings growth going forward.
Goal: no goals.
Dividend:
Both companies have had good success growing dividends. Rio Tinto has grown its Australian dividend from $0.51 in 2009 to $2.13 for the full year 2013, while Fortescue has grown its dividend from zero to 10cps for the full year 2013.
However the slowing of growth in China in my view places more risk around Fortescue's dividend, giving Rio a lucky goal.
Goal: Rio Tinto
Full time!
With two goals to one, Rio Tinto clinches the game from Fortescue Metals Group. Conditions can change quickly in the resource sector and this Money-Ball match-up is a reminder that sometimes the numbers only tell half the story.
