Iron ore price, page-41730

@Greatone - my response to your post earlier today.

Analyst EstimatesAnalysts views are generally based on a 12-month target price, which generally has 2 components:

1. A long-term DCF component which is the long-term value component you refer to.
2. Short-term multiple valuation component to capture cyclical changes in the share price.

What changed was China's decision to restrict steel output and as a result, Iron Ore target prices were slashed:



The target price reductions are a direct consequence of this "surprise":

• Goldman's long-term valuation target didn't change much - it went from $12.23 to $9.51.
• The damage was done in the short-term multiple valuation component.

Goldman's was using a multiple of 4x Next Twelve Months (NTM) EBITDA.

• In July 21 NTM EBITDA was expected to be US$15.4b, a multiple of 4x gives an enterprise value of US$61.6b which equates to $27.41 per share - a very accurate representation of how the market was pricing FMG at the time, i.e. their model was well-calibrated.
• By Dec 21 NTM EBITDA was now expected to be US$7.84b, a multiple of 4x gives an enterprise value of US$31.37b which equates to $13.96 per share - pretty much exactly where FMG just bottomed out at.
• There are some additional adjustments for net debt/cash that I have left out above and below.

Due to this, Goldman's share price valuation as follows:

• July 21 it was essentially 50% x $12.23 + 50% x $27.41 = $19.82 and a sell recommendation... great call!
• Dec 21 it is essentually 50% x $9.51 + 50% x $13.96 = $11.73 and a sell recommendation ... we will see.

Goldman's methodology and multiples have not changed, all that changed was lower IO price assumptions as a result of the CCP's decision to limit steel output. Question: Why do you consider this to be unreasonable, do you expect analysts to know what the CCP is going to do?

HotCopperHaving had a few decades of experience with HotCopper, things are much better than they used to be. It's an online forum, you will have trolls. As an aside if the posting debacle that happened a few weeks ago occurred 10 years ago, you would still all be temporarily banned.