I'm not trying to defend the situation here but just shining some light on why it may make sense:
- Analysts have upgraded their medium range IO price assumptions to the low 90's... whatever.
- Under that scenario FMG's earnings have a bit of downward tilt from FY25 going from $1.15 to $1.00, whereas RIO's stay flat around $7.10 per share.
- That puts FMG on a forward PE of say 27x (using $1.05 earnings) and RIO is on 17.5x so that changes the picture quite a bit.
I think FMG's margins would be more sensitive to the IO price though, so perhaps at the current IO price FMG and RIO's forward PE's might be more similar if I could be bothered working it all out in full at spot.
The above numbers are taken from Goldman's research.
Iron ore price, page-51392
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