Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

A buy-side analyst with over 15 years of experience investing in Asian markets and specializing in the mid-small cap space, emphasizing value investing in companies with good free cash flows/dividends and long-term holding horizons. 
Exempt Financial Adviser (EFA) under CrossASEAN Research Pte Ltd. It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity, Bottom-up Analyst

Fortescue Metals: More Upside In the Near Term

Fortescue Metals Group: Slight Hiccup from China but Thesis Intact

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

<p>After having gone ex-dividend, <a href="https://www.smartkarma.com/entities/fortescue-metals-group-ltd" target="_blank" data-smartkarma-citation="entities:41:1" rel="noopener">Fortescue Metals (FMG AU)</a> now presents a short-term opportunity. Last month due to its strong results, it declared a fully franked interim dividend of $1.47 per share, up a massive 93.4% on the prior corresponding period. Based on the Fortescue share price at Friday’s close, this interim dividend represents a 6% yield. </p><p>We think Fortescue presents an opportunity for a quick trade, given that iron ore prices are likely to hold for the short-term due to:</p><ul>
<li>Supply Issues out of Australia.</li>
<li>Mill Margins in China inflecting into positive territory.</li>
<li>Steel production levels are recovering in countries ex-China, for example, India and Brazil.</li>
</ul><p>With iron ore prices hovering at 160$-170$/ton, Fortescue can potentially achieve free cash flows of 16-18% and dividend yields of 13-14%, assuming 60% payout ratios.</p><table class="table table-striped">
<colgroup>
<col>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="width: 42pt;">Ore Px USD/ton</td>
<td style="width: 50pt;">Div Yield (%)</td>
<td style="width: 57pt;">FCF Yield (%)</td>
<td style="width: 44pt;">EV-EBITDA</td>
</tr>
<tr>
<td>60</td>
<td>2%</td>
<td>-1%</td>
<td>22.0</td>
</tr>
<tr>
<td>70</td>
<td>3%</td>
<td>1%</td>
<td>16.7</td>
</tr>
<tr>
<td>80</td>
<td>4%</td>
<td>3%</td>
<td>13.4</td>
</tr>
<tr>
<td>90</td>
<td>5%</td>
<td>4%</td>
<td>11.2</td>
</tr>
<tr>
<td>100</td>
<td>6%</td>
<td>6%</td>
<td>9.6</td>
</tr>
<tr>
<td>110</td>
<td>7%</td>
<td>8%</td>
<td>8.4</td>
</tr>
<tr>
<td>120</td>
<td>8%</td>
<td>10%</td>
<td>7.5</td>
</tr>
<tr>
<td>130</td>
<td>9%</td>
<td>11%</td>
<td>6.7</td>
</tr>
<tr>
<td>140</td>
<td>10%</td>
<td>13%</td>
<td>6.1</td>
</tr>
<tr>
<td>150</td>
<td>11%</td>
<td>15%</td>
<td>5.6</td>
</tr>
<tr>
<td>160</td>
<td>13%</td>
<td>16%</td>
<td>5.1</td>
</tr>
<tr>
<td>170</td>
<td>14%</td>
<td>18%</td>
<td>4.8</td>
</tr>
</tbody>
</table><p><em>Source: Company filings, internal estimates</em></p>

After having gone ex-dividend, Fortescue Metals (FMG AU) now presents a short-term opportunity. Last month due to its strong results, it declared a fully franked interim dividend of $1.47 per share, up a massive 93.4% on the prior corresponding period. Based on the Fortescue share price at Friday’s close, this interim dividend represents a 6% yield. We think Fortescue presents an opportunity for a quick trade, given that iron ore prices are likely to hold for the short-term due to:
Supply Issues out of Australia.
Mill Margins in China inflecting into positive territory.
Steel production levels are recovering in countries ex-China, for example, India and Brazil.
With iron ore prices hovering at 160$-170$/ton, Fortescue can potentially achieve free cash flows of 16-18% and dividend yields of 13-14%, assuming 60% payout ratios.








Ore Px USD/ton
Div Yield (%)
FCF Yield (%)
EV-EBITDA


60
2%
-1%
22.0


70
3%
1%
16.7


80
4%
3%
13.4


90
5%
4%
11.2


100
6%
6%
9.6


110
7%
8%
8.4


120
8%
10%
7.5


130
9%
11%
6.7


140
10%
13%
6.1


150
11%
15%
5.6


160
13%
16%
5.1


170
14%
18%
4.8


Source: Company filings, internal estimates

Fortescue, Short-Term Upside After Going Ex-Dividend