Brave, stupid, or just on the money?
Argonaut's Troy Irvin has acknowledged the potential hazards of doing a job on Twiggy Forrest's Fortescue (FMG), but has not been deterred from what he sees as his duty.
"At the risk of getting turfed out of Western Australia, I rate FMG a 'stand back'," the well-respected Irvin says in his latest note to investors.
While describing the iron ore miner's stock as a "punters' paradise", Irvin believes the company's "investment grade proposition is challenged by too much debt coincident with too much red dirt coming out of the ground".
He cites a combination of "brutal" supply increases, unhelpful Chinese economic data and the fact that FMG's net debt of ~US$7.5b is equal to about 96% of its market cap, a situation he says is "high for a pure-play in a ruthless iron ore market".
Irvin calculates that at the current iron ore price and exchange rate, "little progress is made on the debt reduction front".
"Despite much of the sell side sticking to a say US10c dividend, this is appropriately under pressure with zero a more sensible number," he writes.
Irvin notes that interest among short-sellers is building, as it is with FMG's smaller peers Atlas and BC Iron.
"This reflects a bearish iron ore view with FMG both operationally and financially leveraged," he concludes.
Argonaut's Troy Irvin has acknowledged the potential hazards of doing a job on Twiggy Forrest's Fortescue (FMG), but has not been deterred from what he sees as his duty.
"At the risk of getting turfed out of Western Australia, I rate FMG a 'stand back'," the well-respected Irvin says in his latest note to investors.
While describing the iron ore miner's stock as a "punters' paradise", Irvin believes the company's "investment grade proposition is challenged by too much debt coincident with too much red dirt coming out of the ground".
He cites a combination of "brutal" supply increases, unhelpful Chinese economic data and the fact that FMG's net debt of ~US$7.5b is equal to about 96% of its market cap, a situation he says is "high for a pure-play in a ruthless iron ore market".
Irvin calculates that at the current iron ore price and exchange rate, "little progress is made on the debt reduction front".
"Despite much of the sell side sticking to a say US10c dividend, this is appropriately under pressure with zero a more sensible number," he writes.
Irvin notes that interest among short-sellers is building, as it is with FMG's smaller peers Atlas and BC Iron.
"This reflects a bearish iron ore view with FMG both operationally and financially leveraged," he concludes.