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Fortescue raises hopes of dividend bonanza with profit...

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    Fortescue raises hopes of dividend bonanza with profit update

    Jan 22, 2021 – 4.26pm

    Fortescue Metals Group shareholders could be in line for an even bigger-than-expected dividend windfall after the company revealed it made more than $US940 million ($1.2 billion) net profit in December alone on the back of high iron ore prices.

    Chairman and founder Andrew Forrest let the cat out of the bag on the December profit during the pre-recording of the first of his Boyer lecture series for the ABC due to air on Saturday.

    Fortescue issued a profit update on Friday, saying it expect first-half NPAT of $US4 billion to $US4.1 billion. It is due to release first-half results on February 18 along with details of a first-half dividend.

    The iron producer’s share price had dipped about 1.6 per cent to $24.46 late on Friday as BHP and Rio Tinto also lost a little ground.

    The UBS estimate for Fortescue’s first-half NPAT was $US4.18 billion and consensus forecasts $US3.95 billion.

    Shaw & Partners analyst Peter O’Connor said forecasts for the full year were running at about $US7.2 billion based on a first-half number close to $US4 billion, but the December figure might prompt a re-think.

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    “It (the profit update) is confirmation of what we would have found out in February,” he said.

    “What’s interesting is if the iron ore price stays high and you continue to annualise these numbers, it is pretty big dividend coming for the full year.

    “The current expectation is $US1.80 or $2.40. The high water mark, if you took the December month and annualised it, and that is a brave call, would see them pay about a $3.50 dividend.”

    Mr O’Connor said that at some point Dr Forrest’s vision for the company to become a global renewable giant and green steel producer, crystalised during a four-month world tour where he caught COVID-19, might become hard for some investors to digest.

    Mr O’Connor said that in discussions with analysts since the Fortescue annual meeting in November at which Dr Forrest spoke about his energy plans from Paraguay, chief executive Elizabeth Gaines and chief financial officer Ian Wells had been supportive.

    Now he has another great idea, a huge idea, but he has a balance sheet behind it.

    Peter O’Connor, Shaw & Partners

    “They are definitely on board and very committed but they have also made it clear that from a financial perspective it will be done off balance sheet,” he said.

    Mr O’Connor said Dr Forrest deserved a tick for his track record as he looked to make Fortescue a major renewable energy player on top of success in iron ore.

    “Back in 2003 when he was sitting there with his iron ore drawing board, he had no balance sheet. He had a great idea,” he said.

    “Now he has another great idea, a huge idea, but he has a balance sheet behind it and with that balance sheet quality he will be able to secure off balance sheet finance as well.

    “He’s basically telling the world what he is going to do and he’ll get people coming to his door now because of what he is offering.”

    In his Boyer lecture, Dr Forrest said: “It [Fortescue] has a market capitalisation of less than $US60 billion but it made a net profit after tax of over $US940 million just last month.”

    Fortescue said on Friday that the December profit reference was based on preliminary unaudited management accounts.

    Ms Gaines said the company had a disciplined approach to capital allocation, including a policy to pay out 50 to 80 per cent of full-year NPAT targeting the top end of this range.

    In regard to renewable energy asset development agreements signed by Dr Forrest while overseas, she confirmed that any project finance would be separately secured without recourse to Fortescue.





 
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