Can
-Upgrade momentum significant on a spot price scenario
-
-Yield on elevated share price dependent on iron ore price sustainability
FY21 guidance for 175-180mt has been reiterated along with C1 cash costs of
Meanwhile, the final dividend of
Iron Ore Pricing
Revenue realisation lifted as West Pilbara fines product rose to 10% of the mix from 5% in FY19. Moreover, tight market fundamentals and speculative financial operators have driven up the iron ore price,
Upgrade momentum is significant, Macquarie agrees, with a spot price scenario generating earnings for FY21-22 that translate to free cash flow yields of 17-18%.
Citi considers it highly probable that iron ore could average
At the other end of the spectrum
However,
Valuation
Citi considers the risk/reward ratio is more attractive at Rio Tinto ((RIO)) but concedes a potential dividend yield of 9% in FY21 will underwrite investor interest in Fortescue over the year ahead. Hence, the broker's rating is upgraded to Neutral from Sell.
On the other hand,
Hence, the broker opts to retain a Hold rating based on valuation. That said,
While avoiding "reverse engineering" in terms of the valuation methodology the broker is also watching steel demand in
The stock has had a very strong run in both absolute terms and relative to the sector, Credit Suisse agrees. While a lot of this is justifiable, those that do not hold the stock need to ask just how much more upside is available when iron ore is above
A moderation in pricing is assumed but the broker acknowledges it was proved wrong by steel demand in 2019, and this appears to be the case again this year. So, the risk to Credit Suisse's rating downgrade is that iron ore holds up longer than expected, which means that the yield on the elevated share price can be maintained for longer.
Meanwhile, Fortescue's growth projects are on schedule and Eliwana is set for first ore to be railed in December. Capital expenditure intentions on Eliwana are US$1.32-1.38bn and the resource estimate at Eliwana declined to 1.8mt. First ore will be shipped from
Macquarie was disappointed with a -2% decline in reserves, implying just modest growth following mine depletion.
Further growth projects are being explored, with the focus on commodities that support the de-carbonisation and electrification of the transport sector. Fortescue aims to be net zero emissions by 2040, with a -26% reduction by 2030. The company has budgeted
FNArena's database has two Buy ratings, four Hold and one Sell (Credit Suisse). The consensus target is
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