Selling Rio Tinto (RIO) & Buying Medibank Private (MBL)
Recent changes to the Blackmore Capital Australian Equity Portfolios Selling Rio Tinto Limited (RIO) “Rio Tinto has a long-standing commitment to protecting cultural heritage and has worked with Traditional Owners over many years to preserve and manage that heritage.” Rio Tinto submission to The Joint Standing Committee’s on Northern Australia
On the 24th May 2020 Rio Tinto was responsible for the destruction of the 46,000 year old rockshelters at the Juukan Gorge in the Pilbara region of Western Australia. At the Parliamentary Inquiry Rio Tinto’s submission acknowledged that destruction of the Juukan rockshelters should not have occurred and “unreservedly apologized” to the Puutu Kunti Kurrama and Pinikura people (PKKP). After close analysis of Rio Tinto’s submission to the Parliamentary Committee and the release by Rio Tinto’s internal Board review, we have sold our position in the company. We contend that Rio Tinto’s Parliamentary submission and the subsequent Board review fell well short of the leadership required by one of Australia’s iconic companies. The Board review acknowledged a series flaws and poor decision-making led to the destruction of the Juukan rockshelters but then abdicated its responsibility to adequately sanction Rio’s leadership executives. Indeed, we do not feel that cancellation of performance bonuses recognizes the irrevocable damage to Rio Tinto’s social licence. Environmental, Social and Governance (ESG) has elevated expectations of responsible practice for all companies. It is our view that Rio Tinto has not sufficiently recognized that incorporating social and environmental considerations into strategic decision-making can enhance their competitive strategies. Blackmore Capital seeks to allocate capital to companies that can sustainably create economic value over longer term. Buying Medibank Private (MPL)
In 1976 Medibank Private was established by the Australian Government as a not-for-profit private health insurer. Listed on the ASX in 2014, today Medibank is Australia’s leading private health insurer with over 3.7 million customers. MPL’s FY20 NPAT of A$315m was broadly in line with market consensus expectations. A final dividend of 6.3c was better than expected. Despite several headwinds embedded in the FY20 result MPL achieved policyholder growth and disciplined cost improvement. For FY21 MPL has guided to further policyholder growth >1%, a similar growth rate for claims, and further cost out opportunities. MPL’s capital position remains strong with Health Insurance related capital at 13.2% (at the upper end range of 11-13%) providing opportunity for M&A and or capacity for future capital management. For FY21 MPL expects to pay a dividend at the top end of its payout ratio range of 75%-85% which equates dividend yield of c.4% fully franked.