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Business Spectator



MARKETS SPECTATOR: Goldman's firm Fortescue conviction
Ben Potter
Published 10:59 AM, 7 Nov 2012




Goldman Sachs turns ‘high conviction’ on the fourth force in iron ore, Fortescue Metals Group and OceanaGold.
In an update to its Australia/NZ conviction list, Goldman has made some changes following its recent performance.

Its resources team has refreshed its views on the sector, adding Fortescue Metals Group and OceanaGold as buy recommendations.

“We add Fortescue Metals Group to the Conviction Buy List following the change to our 12-month discount cash flow and P/E based target price to $7.24 ($5.83). Fortescue has very strong leverage – both operational and financial – to our positive iron ore market view over the next two years. The potential return for Fortescue is 75 per cent from the current share price. We note that even under the spot commodity price scenario, we still see c.72 per cent potential variance to the current share price,” Goldman said.

“In our view, on balance the strong earnings momentum outweigh the debt funding level risks. On our production and iron ore price estimates, we believe Fortescue has the potential to be debt free in fiscal 2018.”