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Reporting season analysis: Fortescue Metals

Reporting season analysis: Fortescue Metals

Fortescue Metals (FMG) missed annual profit estimates by 25%

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By Expert Panel 24.08.2015

REPORTING SEASON: Forescue Metals (FMG)

Brought to you by CommSec

 

Figure 1: Fortescue Metals Ltd 12 month chart

 

Fortescue Metals (FMG) missed annual profit estimates by 25%

? Fortescue Metals (FMG) posted a huge slump in annual profit to US$316m for the 12 months ended 30 June 2015. The result was ~25% below consensus and held back by lower iron ore prices (-55% over FY15) and boosted by improvements in productivity, efficiency (including cost cutting measures) and record shipments.

? Australia’s 3rd largest iron ore miner generates 94% of its revenue from selling ore to China and is extremely sensitive to economic developments in the world’s second biggest economy. FMG accounted for 18% of China’s total iron ore imports in 2015. FMG said it achieved a realised price of US$57/dmt for its ore over the year and has US$2.4bn of cash on hand.

? Its debt position remains largely unchanged and uncomfortably high at US$7.2bn. Considering this is ~A$4bn above FMG’s market capitalisation (value on ASX), an external cash injection could be helpful. Media reports that a Chinese consortium is eyeing a stake in the ore miner surfaced in May.

? FMG will surprisingly pay eligible investors a modest A$0.02/s fully franked final dividend on 5 October, with 3 September as the ex-dividend date. This decision was made despite its mountainous debt and weak earnings. FMG spent US$343m on payments over FY15.

? FMG shares slumped following the consensus miss which takes its losses this calendar year to ~35%. Looking ahead, FMG has provided shipping guidance of 165mt for FY16; in-line with shipments made over FY15. No specific profit estimates were made for the year ahead.

 

You can see all of CommSec's reporting season analysis by clicking here.

Steven Daghlian, Market Analyst, CommSec

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