john veldhuizen

An old story, but worth repeating.

http://www.thewest.com.au/default.aspx?MenuID=159&ContentID=52525

Brokers pay for not trusting $8b man

29th December 2007, 10:00 WST

Sydney stockbroker Charlie Aitken raised eyebrows this year for daring to suggest Andrew “Twiggy” Forrest’s wealth could soar to $10 billion within three years.

And not surprisingly, given that shares in Mr Forrest’s fledgling iron ore producer Fortescue Metals Group were trading around $2.50 when he predicted they would soar to $10.

But even Mr Aitken’s bullishness in the face of disbelieving peers could prove a tad conservative after Fortescue shares leapt 18 per cent to $8.47 yesterday, increasing the value of Mr Forrest’s stake by $1.3 billion to $8.5 billion by lunchtime and in the process ensuring he had surpassed good mate James Packer as Australia’s richest man .

Mr Packer’s wealth was estimated at $7.25 billion earlier this year, though it is not clear whether this has changed significantly.

With Fortescue shares up 537 per cent this year, including $2.17 in the past week, there is a strong chance they could soon hit the magic $9.92, when Mr Forrest will be officially Australia’s first $10 billion person.

Mr Forrest is overseas and could not be contacted yesterday. But he said recently that wealth meant little to him and simply raised his charity ambitions. He has already bequested $85 million worth of shares to his charity Australian Children’s Trust, which aims to help underprivileged children.

Yesterday’s stunning performance is the second time in six weeks Mr Forrest has made $1 billion between breakfast and lunch. When Fortescue announced a one billion-tonne iron ore find 60km north of Tom Price last month, its shares leapt 20 per cent to $6.49 before lunch to boost his fortune — on paper — by $1 billion.

Fortescue’s stunning performance — it is easily the most successful stock on the Australian sharemarket this year — has been in defiance of predictions made by most of Australia’s best-known stockbroking houses.

Nervous about backing Mr Forrest based on the experience of his previous venture, the problem-riddled Anaconda Nickel, most analysts have shunned Fortescue.

As a result, Australia’s best-known and biggest fund managers have largely missed out on Fortescue’s phenomenal performance over the past three years, leaving billions of dollars of potential profits on the table while more supportive overseas investors have enjoyed a once-in-a-generation bonanza. It is thought that less than 5 per cent of Fortescue is held by Australia’s blue-chip institutional investors.

Mr Aitken, from Southern Cross Equities in Sydney, and BBY analyst John Veldhuizen in Melbourne have been the only two long-term supporters in Australia, casting aside the substantial development risk attached to Fortescue’s $2.7 billion Pilbara mine, railway and port project. Fortescue’s project is not due to start producing iron ore until May.

Instead, they have pointed to Fortescue’s strategic position as the only substantial new player in a global iron ore market dominated by the triumvirate of BHP Billiton, Rio Tinto and Brazil’s Vale, coupled with the strong likelihood that iron ore prices will continue to rise.

Mr Aitken said in May that Fortescue could easily be a $10 stock within three to five years.

But even Mr Veldhuizen, who first told his clients to buy Fortescue shares when they were 20¢ in early 2005, said he was flabbergasted by this week’s performance and found it difficult to justify the $8.47 valuation. He has nonetheless urged clients to hold on to the shares.

“But given the bullish macroeconomic conditions it’s very hard to put a sell on the next major iron ore producer,” he said. “(If you do) you are going to get caught with your pants down.”

His views are not supported by Australia’s blue-chip broking houses such as Macquarie Equities, which expects Fortescue to slump to just $3.36, and Goldman Sachs JBWere, which predicts they will fall to $6.02 next year.

PETER KLINGER