FMG 1.62% $21.92 fortescue ltd

Iron ore price, page-69

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    RBC lifts iron ore, Fortescue forecasts

    RBC Capital Markets is the latest broker to boost its iron ore price forecasts and upgrade Fortescue Metals.


    RBC Capital Markets analysts tip iron ore to average US$84.50 over 2017 and rerate pure-play miner Fortescue.
    This follows similar moves from Credit Suisse and Morgan Stanley this month as iron ore continues to defy expectations.

    RBC now sees the iron ore market as being relatively balanced in 2017 as steel margins in China support prices following supply side reform.

    “We forecast China’s apparent steel demand to increase by 4.5pc in 2017 via infrastructure and property sector consumption, though expect this to soften in the second half,” say RBC analysts let by Paul Hissey.

    “We also expect supply to respond in the second half causing prices to soften. We increase our 2017 price forecast to US$84.50 from US$67.50 whilst our medium to long term forecasts remain unchanged.”

    Mr Hissey has subsequently lifted Fortescue Metals (FMG) to Outperform vs. Market Perform, while boosting its target price to $8.50 vs. $6.30.

    He estimates Fortescue will generate an additional US$1.5b free cash flow under his new iron ore forecasts.

    Assuming the company repays its debt at maturity and with limited options on the M&A front, he expects the cash to flow to shareholders.

    “As such we increase the dividend payout to 60 from 40 per cent of net earnings which allows for increased shareholder returns, whilst maintaining an improvement in net gearing,” he says.

    “As such FMG’s dividend yield for FY17-18 is above that of its large cap Australian mining peers.”
 
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