FMG - Fortescue Ltd

[joeno]

VC: what do you think is the "fair value" price range of this stock? I've noticed a few commentators lately providing a "sell" recommendation for FMG.

 

[Value Collector]

VC: what do you think is the "fair value" price range of this stock? .

I think easily north of $7, at over $60 a tonne Iron ore price it could be significantly more.

I've noticed a few commentators lately providing a "sell" recommendation for FMG

Let blockheads read what blockheads wrote. (As they say)

Did they happen to give their reasons?

 

[Klogg]

Did they happen to give their reasons?

I haven't looked at FMG closely enough, but I can almost guarantee it's one of these:

1) They want to create turnover and generate revenues
2) Groupthink
3) Because they didn't want to say "I don't know"

 

[qldfrog]

while I believe FMG is/was well managed (as opposed to BHP disastrous Marius impact), I am always suspicious when everyone is self congratulating about how good times are;
usually the time when sh*t hit the fan;
Why/when do not know but probably better to short FMG now than a year ago based on past general experience
So maybe the reason some trader want to put a sell on it.
Especially if the dividend is already included in the price, you can remove some risk and still benefit anyway..

A play not specific to FMG by the way....

 

[qldfrog]

or the sell is just linked to that:http://www.brisbanetimes.com.au/business/mining-and-resources/this-hot-commodity-is-destined-to-cool-off-soon-20160823-gqz727.html
even if FMG makes money, it may not be as much

 

[Value Collector]

or the sell is just linked to that:http://www.brisbanetimes.com.au/business/mining-and-resources/this-hot-commodity-is-destined-to-cool-off-soon-20160823-gqz727.html
even if FMG makes money, it may not be as much

So Basically they are just hoping for a significant and permanent fall in the IO price, they may see that, but I don't think so.

Basically I am happy to hold FMG with a long term average IO price over $50 over $60 is really, really good.

I am not saying that IO won't at some stage tick down below $50, Just that I don't think it will sit there long, and so banking on that happening is crazy IMO, especially when in the mean time cash flows are coming in wiping away debt.

_______________________________

Some thing that a lot of people have missed, is that FMG is now just as profitable as they were at IO $100, BHP and RIO are not.

BHP and RIO had lower production costs prior to the falls, FMG had much higher costs, as the price has fallen, bhp and Rio's margins have been compressed, however FMG has maintained their margins by reducing costs.

eg.

Prior to fall,

BHP break even was in the $30's meaning gross margins of over $70

FMG Break even was in the $80's meaning gross margins of $20's

since the fall BHP no longer earns $70+ gross margins, however fmg still earns $20+ as they did before.

So FMG returning to their pre IO price collapse is Justified, infact they should be even higher because they now produce more tonnes, and have less debt.

 

[qldfrog]

So Basically they are just hoping for a significant and permanent fall in the IO price, they may see that, but I don't think so.

Basically I am happy to hold FMG with a long term average IO price over $50 over $60 is really, really good.

I am not saying that IO won't at some stage tick down below $50, Just that I don't think it will sit there long, and so banking on that happening is crazy IMO, especially when in the mean time cash flows are coming in wiping away debt.

_______________________________

Some thing that a lot of people have missed, is that FMG is now just as profitable as they were at IO $100, BHP and RIO are not.

BHP and RIO had lower production costs prior to the falls, FMG had much higher costs, as the price has fallen, bhp and Rio's margins have been compressed, however FMG has maintained their margins by reducing costs.

eg.

Prior to fall,

BHP break even was in the $30's meaning gross margins of over $70

FMG Break even was in the $80's meaning gross margins of $20's

since the fall BHP no longer earns $70+ gross margins, however fmg still earns $20+ as they did before.

So FMG returning to their pre IO price collapse is Justified, infact they should be even higher because they now produce more tonnes, and have less debt.

Agree with you cf BHP/RIO; but as you know and have experienced, SP varies based on sentiments;
It does not take much to see IO/FMG go down irrespective of the profit per tonne;
All good for long term holders but not if you are ready to get out/back at a week notice, this is a different matter
Still , FMG mgt did a great job, reselling the debt at a discount, reducing costs:well done; FMG may still be around in 10y time which was not a given 5 year ago.

 

[Value Collector]

Agree with you cf BHP/RIO; but as you know and have experienced, SP varies based on sentiments;
It does not take much to see IO/FMG go down irrespective of the profit per tonne;
All good for long term holders but not if you are ready to get out/back at a week notice, this is a different matter
Still , FMG mgt did a great job, reselling the debt at a discount, reducing costs:well done; FMG may still be around in 10y time which was not a given 5 year ago.

Offcourse share prices fluctuate, but the value generation linked to profit per tonne is what's important, that will ensure the debt keeps getting wiped and the dividends strengthen and the share price gets stickier at higher levels.

 

[Value Collector]

Offcourse share prices fluctuate, but the value generation linked to profit per tonne is what's important, that will ensure the debt keeps getting wiped and the dividends strengthen and the share price gets stickier at higher levels.

Another $700 Million of debt to be cleared on Friday.

the US$700 million Term Loan repayment will be made at par on Friday 16 September 2016, generating annual interest savings of approximately US$26 million.

with $2.9 Billion cleared last year, and $700Million cleared in the first 3 months of this financial year, combined with a record final dividend of 12cents, this company is generating cash fast.

you may be right, but I think playing that game at this stage is like picking up pennies in front of a steamroller, as they say.

The FMG steamroller is certainly rolling forward at a steady pace, watch your hands if you are shorting, those pennies are pretty close to the roller imo

 

[CanOz]

Looks like today retested the break lower from the prior value area....doesn't this track the iron ore price quote closely. Here in China they're quite bearish on iron ore now as the last effort stimulating the credit boom could be running out of steam.....

 

[skc]

Looks like today retested the break lower from the prior value area....doesn't this track the iron ore price quote closely. Here in China they're quite bearish on iron ore now as the last effort stimulating the credit boom could be running out of steam.....

The more debt FMG repays, the less they are financially leveraged (or held randsom) to IO prices. We are seeing that already.

I/O spot prices has gone from a peak of 511 on 9 Aug to 393 today... some 23% fall.

Yet FMG is trading pretty much flat since early Aug.

Back in the days a 20% fall in IO would see equal if not larger fall in FMG.

 

[notting]

Their running in front of the steam roller, now, like a Monty Python character tossing money out the sides like their at a mass Greek wedding.
They are basically printing money and are running more efficiently than pretty much anyone else now.
Unbelievable, but true.

 

[Value Collector]

with $2.9 Billion cleared last year, and $700Million cleared in the first 3 months of this financial year,

The FMG steamroller is certainly rolling forward at a steady pace, watch your hands if you are shorting, those pennies are pretty close to the roller imo

The recent production report and investor presentations released look pretty good, the cash position has recovered back to $1.8 Billion after last quarters debt repayment of $700Million, so it looks like they will be ready to make another debt repayment soon.

If the Iron ore price holds above $50, full year debt repayments could even get to $2.8 Billion, this should enable them to start issuing investment grade debt at much lower interest rates, and would allow them to turn their attention to using the cash flow for dividends/buybacks or making some investments.

 

[Ves]

The recent production report and investor presentations released look pretty good, the cash position has recoved back to $1.8 Billion after last quarters debt repayment of $700Million, so it looks like the will be ready to make another debt repayment soon.

If the Iron ore price holds above $50, full year debt repayments could even get to $2.8 Billion, this should enable them to start issuing investment grade debt at much lower interest rates, and would allow them to turn their attention to using the cash flow for dividends/buybacks or making some investments.

That's an amazing effort given some of the circumstances.

Well done for sticking to your guns on this one.

 

[Value Collector]

Is your price target still $7 VC?

As a minimum.

Doesn't seem to implausible any more does it,

Here are the annual general meeting speeches for anyone that's interested.

 

[joeno]

Doesn't seem to implausible any more does it,

Great call mate. Such a consistently high performing stock. Only regret I didn't buy more at $1.7

 

[Porper]

Great call mate. Such a consistently high performing stock. Only regret I didn't buy more at $1.7

MGX an alternative. Low volume at times so higher risk but recently broke up out of a long consolidation pattern. High risk/high reward.

I hold.

 

[skc]

Just sharing this article about the iron ore miners...

http://www.nikkoam.com.au/knowledge...ian-iron-ore-miners-what-does-the-future-hold

 

[Value Collector]

FMG just closed at the highest closing price for more than 5 years, $6.58.

 

[Value Collector]

It has just been announced that Fortescue metals group is the lowest cost producer of Iron ore.

They are now in a wonderful position, producing low cost Iron ore at a time when Iron ore selling at over $80 a done, they are now making better cashflows than they were when the spot price was $120.

I am very, very happy to be holding this company right now, their debt is melting away and with these cashflows the dividend should be very nice indeed, not long now and the share price should reflect the true performance of FMG.

Happy days.