fundamentals

I'm pretty new to FMG but wondering if my thinking is right on the fundamentals. If so, then surely if the iron ore price holds up, then the recent drop in the share price will surely be shortlived.

Last year FMG earnt $1.7bn NPAT, equating to just short of a P/E of 10. The majority of this ($1.2bn) was earnt in the 2nd half of the year, so essentially ended the last financial year on a run rate of circa $2.4bn NPAT equating to a P/E of circa 7.

Production in the first quarter was up by 61%, with prices higher and costs lows essentially backing up the theory above.

As production is currently ramping up, if the iron ore price stays high then $2.4bn should essentially be on the lower end of what FMG could yield as profits this year.

With full year shipments being forecast around 60% up on last year again this also backs up the theory that profits will be well ahead of last year, again with the caveat that the iron ore price stays high.

In addition, with the debt repayments that have recently been made, interest savings of around $130m / annum have already been realised, with potentially another $70m coming our way (relating to the remainder of the 2015 secured notes) then this could add an additional $200m to FMG's NPAT compared to what was realised in the last financial year (obviously not all will be realised in this financial year).

Maybe we should be comparing FMG to an EV/earnings rather than P/E but other than that, this seems a no brainer to buy at these values at the moment if the above is true. I think the only real risk is around chinese demand and the relevant impact on the iron ore price.

Have I got anything wrong? I'm a little surprised how far the share price has fallen from recent highs. After the run up in the price, it was probably expected there would be a drop in price, but the extent seems pretty heavy based upon the fundamentals.