Broker tips: Rio Tinto, Sureserve

Analysts at Berenberg reiterated their 'buy' rating on mining giant Rio Tinto on Friday after the group delivered a "fairly stable" first-quarter performance.

Berenberg stated Rio Tinto had reported iron ore production of 79.0m tonnes, in line with its 78.7m tonne estimate, while shipments of 82.5m tonnes were better than its 78.7m tonne estimate. However, when drilling slightly into the detail, the analysts noted that while shipment volumes were good, a lot of the additional material came from lower-quality and lower-value SP10 material.

The German bank also noted that due to geotechnical issues at its Escondida site and conveyor issues at Kennecott, Rio has cut copper guidance to 590,000-640,000 tonnes from 650,000-710,000 tonnes. For the aluminium business, bauxite production was 12.1m tonnes, below its 12.7m tonne estimate due to poor weather in Australia.

Berenberg, which also stood by its 6,600.0p target price on the stock, said: "We update our model for the quarterly report, which results in limited changes. We reiterate our 'buy' rating on Rio, which offers a 9.2% FCF yield, a 7% dividend yield, and is trading on 4.4x EBITDA and 1.09x NAV."

French private equity firm Cap10's £214.1m offer for social housing energy services provider Sureserve "looks cheap", said Peel Hunt, which also conceded that it was still likely to succeed.

Under the terms of the deal agreed, Cap10 will pay 125.0p in cash for each Sureserve share, representing a premium of around 38.9% to the closing share price on Thursday.

Peel Hunt said: "This looks cheap for a market leader with attractive, defensive positions and a strong management team.

"We note that whilst organic growth looks assured (PHe circa 8% over the horizon), Sureserve has only completed one M&A transaction.

"We suspect the opportunity to rapidly develop the ‘platform’ for decarbonisation and energy solutions has drawn the PE interest.

"Although we would not discount a competing offer, it seems remote given that we suspect others will have looked in the past (and may have some concerns regarding outlook for gas boiler maintenance and legacy)."

Peel Hunt rates the shares at 'buy' with a 120.0p price target.