Thanks convex, I'm thinking of taking some profits prior to ex...

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street professor

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10/07/21

07:37

Post #: 54410338
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Originally posted by convexity: ↑

Well firstly FMG’s share price is a volatile random process so +/- a few dollars movement could just be randomness that has no explanation aside from luck - good or bad.

But I think there is a simple and obvious explanation for the "grind higher", to tease out the valuation implications I’ll use a dummy example and then relate that back to FMG, let’s assume:
A stock trades at $10.
The stocks DCF valuation is $10 and the market expects $1 dividend/year.
The company effectively pays out all its profits in dividends.

If something happened to boost current year dividends from say $1 to $2, but all future dividends were expected to remain as initially forecast, the stock should trade up to $11 prior to the dividend payment to account for the unexpected additional $1 in earnings/dividends that year before that value is removed from the stock price following the dividend payment.

This is not too dissimilar to FMG’s situation in which analysts still seem to retain the view that Iron Ore will fall back a long term average and there is no change in FMG’s production profile, however, the “unexpectedly and persistently” high Iron Ore price is causing short term dividends to constantly increase above expectations, without changing long term dividend expectations.

Since the last dividend payment, the expected final dividend for FY21 has certainly increased above initial expectations and so is the interim dividend for FY22 and possibly the final dividend for FY22, so I suspect you are seeing that be reflected in the share price – however a higher share price before larger dividend payments will be negated by a larger drop after those dividend payments.

There will only be a re-rate if long term IO expectation and as a result DCF valuations change.

I understand there is some reinvestment of profit via FFI and potentially future growth, but it is not known if that will be profitable or not at this stage.

This is how I think about and trade the current situation.

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Thanks convex, I'm thinking of taking some profits prior to ex dividend then buying back into FMG and BHP. Hopefully a solid run up until then.
Last edited by street professor: 10/07/21

FMG Price at posting: $23.87 Sentiment: Buy Disclosure: Held
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(20min delay)
Last $19.22		Change -0.270(1.39%)		Mkt cap ! $59.17B

Open	High	Low	Value	Volume
$19.52	$19.55	$19.22	$85.01M	4.398M

Buyers (Bids)

No.	Vol.	Price($)
2	27260	$19.22

Sellers (Offers)

Price($)	Vol.	No.
$19.33	100	1

View Market Depth

No.	Vol.	Price($)
2	27260	19.220
3	15882	19.210
11	6971	19.200
2	2020	19.190
2	15102	19.180

Price($)	Vol.	No.
19.330	100	1
19.340	1600	1
19.350	14582	1
19.370	14582	1
19.390	5283	4

Last trade - 16.10pm 04/11/2024 (20 minute delay)

FMG (ASX) Chart

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