FMG

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$16.12 fortescue ltd

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TeTeTe

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29/10/14

12:23

Post #: 14200079
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Originally posted by rcman ↑

Oct 29, 2014

Site visit points to “bankable” 171mt in FY17: Last week’s FMG site visit highlighted a no-capex pathway to a potential 180mtpa output. Rail and port capacity will be at this level by mid CY15. We have assumed 171mt production in FY17 post the start-up of the Solomon detritals plant plus 5mtpa of additional DSO at Chichesters. We stick with our US$30-$31/t cash costs to be conservative but note FMG is targeting cash costs in the mid $20s/tonne range. Higher volume assumptions see our FY15 EPS revised up 4% and FY16-17 EPS up 10%.

■ Valuation metrics compelling: In FY16 we use $80/t China fines pricing and FMG can still generate $1bn off our $30/t cash costs. And with capex at$1.2bn, debt can still be reduced by ~$700m. Even at this earnings and FE price low, FMG trades on FY16 PE of 8.6x, price/cash earnings of 3.9x and FCF yield of ~11% at an EBIT margin of $11/t. Our DCF SOTP is A$6.5/sh.

■ Stress test also supportive: Running $85/t in perpetuity through our models with no change in costs gets a DCF in line with the share price for a steady state EBIT margin of $13/t. At $5/t lower costs, the share price solves for $80/t iron ore. The good news is that at $13/t margin, FMG can still reduce debt and is trading on prospective P/Es at 6-7x and cash P/Es at ~3.5x. At the lower costs, the EBIT break-even Fe price is $72/tonne. Every $4/t increase in the assumed Fe price adds A$1/sh to the DCF.

■ Maintain OUTPERFORM and target price of $5.00. FMG’s shares are down 24% in the last three months, underperforming iron ore peer Rio Tinto by 16%. On a 12-month view, FMG has underperformed Rio by a hefty 28%. Value is apparent and we think our stress-testing points to an attractive risk-reward opportunity.

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Hi
I am surprised people still listen to these so called broker experts. I remember not so long back for example, BCI had a strong buy with just about all brokers, when it was over $5, what it is now less than $1.20. On my valuation for FMG I have a bearish target between $1 and $2. So I think FMG is overvalued and probably a good short the rallies. Cheers.

FMG Price at posting: $3.44 Sentiment: Sell Disclosure: Not Held
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(20min delay)
Last $16.12		Change -0.010(0.06%)		Mkt cap ! $49.63B

Open	High	Low	Value	Volume
$16.30	$16.35	$16.00	$142.8M	8.831M

Buyers (Bids)

No.	Vol.	Price($)
7	18592	$16.10

Sellers (Offers)

Price($)	Vol.	No.
$16.14	3138	1

View Market Depth

No.	Vol.	Price($)
3	1844	16.100
1	400	16.080
3	2062	16.070
2	9455	16.060
1	2000	16.050

Price($)	Vol.	No.
16.140	3138	1
16.200	1600	2
16.220	1010	1
16.270	491	1
16.280	9999	1

Last trade - 16.10pm 06/09/2024 (20 minute delay)

FMG (ASX) Chart

From Credit Suisse, page-2

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