FMG - Fortescue Ltd

[basilio]

It's hard to read into a day (or month) when something's just following the same trend as everything else. I'm going to guess it's jitters over the USA & China meeting in Alaska over the weekend but that's just pure guesswork.

For the foreseeable future - 12 months min - China needs iron ore as a basic commodity. Australia is the biggest supplier and Brazil our major competitor is still struggling to meet its production targets. Hard to see a substantial collapse in prices but perhaps a return to the $120-$130 a tonne from late last year ?

Down the track supply might change. But not quickly.

 

[over9k]

Just buy some BRZU as a hedge if that's your concern.

 

[Value Collector]

FMG share price down steeply again today. Reinforces, perhaps, the security angle of the bond issue.

At the same time of course if Twiggy thinks the current price is a bargain FMG can purchase stock and improve the value of the remaining shares. (Of which he currently owns 36%)

Has to some nervous nellies out there. Iron ore prices are still exceptionally high and the three months of 2021 FMG earnings will easily surpass the last 3 months of 2020 on iron ore prices

View attachment 121705

Yep, share prices will fluctuate, I continue to hold, FMG is worth a lot more than current share price, but fluctuations should always be expected, especially is stocks that have attracted a large following of speculators and shorters over reacting to each other.

 

[basilio]

One thing I did notice was that 7.6 million shares were sold after COB on Friday . Someone big wanted out in a hurry.
There has been heightened sales activity today. Perhaps specs and shorters taking profits or just getting out ?

Of course another possibility is some seriously bad news in the wings. Have absolutely no inkling of such but sometimes heavy selling and big falls precede such announcements.

 

[Beaches]

It all comes down to your view on iron ore prices
There are concerns developing in the market that the price of Iron ore is due for a correction. Thats not to say the price will drop but perception is everything sometimes.

FMG down 4%
CIA was down 11% at one stage today on no news
MGX down 5%

 

[Value Collector]

It all comes down to your view on iron ore prices
There are concerns developing in the market that the price of Iron ore is due for a correction. Thats not to say the price will drop but perception is everything sometimes.

FMG down 4%
CIA was down 11% at one stage today on no news
MGX down 5%

The thing with FMG is though, it’s already priced as if the Iron Ore price is $90, but we have already been accumulating excess profits for the last 3 months that will count to the next dividend at Iron Ore Prices of $160+.

This has happened before, the market over reacts to a potential down turn in Iron Ore price, mean while FMG has strong earnings in the back ground which create a future upward trend.

 

[Value Collector]

The thing with FMG is though, it’s already priced as if the Iron Ore price is $90, but we have already been accumulating excess profits for the last 3 months that will count to the next dividend at Iron Ore Prices of $160+.

This has happened before, the market over reacts to a potential down turn in Iron Ore price, mean while FMG has strong earnings in the back ground which create a future upward trend.

What I am trying to say is, FMG was recently $25 and based on the earnings of the first half of this year, that equals a 6.8 PE or in other words a 14% Net profit after tax earnings yield and a 16.8% dividend yield (including franking).

So the high Iron ore price was not priced in, it was already trading as if the price of iron or was going to suffer an immediate fall back to $100 or so.

Now the Iron ore price has come off a bit and that’s rattled the bird cage and the share price has dropped back to $19, which factors in and even lower Iron ore price.

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As I mentioned in the discussion about bonds vs shares, shares earnings and prices fluctuate with a violence that not everyone can stomach, hence why some are attracted to the stability and safety of bonds.

Read through the hot copper FMG thread and you will see how fast people turn from greed to fear on a daily basis some times.

this irrational fear and greed cycle is what causes these wild swings, in my opinion FMG was under valued at $25 and it is even more so undervalued at $19.

unless there is some big nasty news that I am unaware of, there is absolutely no need to panic, FMG is in a strong position and it’s share price is along way from being over valued.

 

[basilio]

It did seem ridiculous for FMG to be dropping to $19 given it's current performance and dividend returns.

Twiggy clearly thought this was a bargain and snapped up 10m shares from March 22-26. Total cost $193.3m
Current value of the 10m shares is $208m .. Total current shareholdings now 1,131,365,000 .
Never loses sight of a buck .

 

[Value Collector]

It did seem ridiculous for FMG to be dropping to $19 given it's current performance and dividend returns.

Yep, when you take the time to run the numbers it does look ridiculously under priced, as I mentioned the share price has never risen to a level that reflects $100+ Iron ore, So I can't see any reason to panic when the Iron ore price drops from $170 to $160. Shareholders should be rejoicing everyday the Iron ore price is higher than $100, whether that is $170, $150, $130 or $110 doesn't really matter, the higher the better obviously, but there is no bubble in the FMG share price, its sitting well below a rational valuation.

Twiggy clearly thought this was a bargain and snapped up 10m shares from March 22-26. Total cost $193.3m
Current value of the 10m shares is $208m .. Total current shareholdings now 1,131,365,000 .
Never loses sight of a buck .

Imagine seeing the dividend from a 1.1 Billion shares hitting your account.

 

[sptrawler]

Imagine seeing the dividend from a 1.1 Billion shares hitting your account.

Let alone the franking credit. ?

 

[Value Collector]

Let alone the franking credit. ?

I got my CBA $1.50 dividend today, CBA is $85 per share vs FMG at $20 paying $1.47... Virtually the same dividend, but you can buy 4 Fmg shares for each CBA.

I have no idea why people are worried about FMG being over valued, it profits could be smashed and reduced by 75% and it would still be on par with CBA, but in the mean time you enjoy a cashflow 4 times bigger than CBA.

 

[basilio]

Yep, when you take the time to run the numbers it does look ridiculously under priced, as I mentioned the share price has never risen to a level that reflects $100+ Iron ore, So I can't see any reason to panic when the Iron ore price drops from $170 to $160. Shareholders should be rejoicing everyday the Iron ore price is higher than $100, whether that is $170, $150, $130 or $110 doesn't really matter, the higher the better obviously, but there is no bubble in the FMG share price, its sitting well below a rational valuation.


Imagine seeing the dividend from a 1.1 Billion shares hitting your account.

Indeed ! Roughly $1.65 Billion. Not so hard to drop a lousy $193M towards buying another 10m shares..

Funny thing is the price went south today.
Almost as if the announcement that Twiggy was in the market for 10m shares last week has lessened confidence in the company !!

It is crazy however to see the disparity in perceived value between FMG and other large companies.

 

[over9k]

I got my CBA $1.50 dividend today, CBA is $85 per share vs FMG at $20 paying $1.47... Virtually the same dividend, but you can buy 4 Fmg shares for each CBA.

I have no idea why people are worried about FMG being over valued, it profits could be smashed and reduced by 75% and it would still be on par with CBA, but in the mean time you enjoy a cashflow 4 times bigger than CBA.

I've been thinking this for a looooong time.

Does the market know something we don't or??




Related: Anyone know anything about the bond sale that I can't find via google? I just found out today that my grandmother actually has a large sum of money that we didn't know about that has been and still is sitting in a term deposit earning damn near nothing and I would genuinely break the term deposit and loan it to FMG if it's still possible.

 

[basilio]

I've been thinking this for a looooong time.

Does the market know something we don't or??




Related: Anyone know anything about the bond sale that I can't find via google? I just found out today that my grandmother actually has a large sum of money that we didn't know about that has been and still is sitting in a term deposit earning damn near nothing and I would genuinely break the term deposit and loan it to FMG if it's still possible.

Done and dusted. Announcement was made on March 19th. Oversubscibed by $750m
Perhaps worth investing a portion of funds in FMG shares ?

 

[joeno]

If trade relations worsen with China, FMG would likely be last to be hit with some sort of export control or sanction. I believe they see what companies around the world "think of them". FMG has been quite fair, hasn't made any rash accusations or decisions. Instead suing for peace and good business. Anything can happen but as it stands it appears to be undervalued and a great great dividend play ?

It's at 7PE with 20% growth (higher income growth but we'll ignore that). Assuming all being the same, it should be a 20/20 company quite easily. So 200% upside.

 

[over9k]

Indeed ! Roughly $1.65 Billion. Not so hard to drop a lousy $193M towards buying another 10m shares..

Funny thing is the price went south today.
Almost as if the announcement that Twiggy was in the market for 10m shares last week has lessened confidence in the company !!

It is crazy however to see the disparity in perceived value between FMG and other large companies.

Preaching to the choir here.

Again, the question is why.

 

[Value Collector]

I've been thinking this for a looooong time.

Does the market know something we don't or??

Maybe the market knows something, but I don't think so. I think the market is just over reacting to the possibility of an Iron Ore price down turn, and how that would affect profitability, So they haven't been willing to bid up the share price to the point that the share price would match current earnings and dividends.

I think the market is correct in believing that the Iron ore price won't be at the current level forever, but I also think they are making a misjudgment about where it will eventually settle and how profitable FMG will be at that level.

Also, a large portion of the markets daily trading volume is from traders that have the idea that they would want to exit if the share price was going to drop by 20%, this causes volatility and wild swings in share prices that can cause strong negative feedback loops especially in companies like FMG, I think this is what caused the recent fall from $25 level to $19, as a longterm holder you can just sit back and ignore that type of thing, and only pay attention when you plan to take advantage of those swings, a bit like Twiggy forrest did recently.

Related: Anyone know anything about the bond sale that I can't find via google? I just found out today that my grandmother actually has a large sum of money that we didn't know about that has been and still is sitting in a term deposit earning damn near nothing and I would genuinely break the term deposit and loan it to FMG if it's still possible.

I have never bought bonds directly, but I believe they would be traded on market probably in the USA, maybe have a chat to an international broker that deals in bonds, but given that they are denominated in US dollars there is also exchange rate risk which would need to be hedged out, so they may not be suited for your Grandma.

There are bond funds and bonds ETF's that might suit her though if she is looking for something better than Term Deposit, perhaps even something like "Plenti" would be good to park some of her cash in, I use Plenti for amounts I know I need to hold for 3-5 years such as the rolling reserve I keep for Taxes, My wage and Options premiums etc,

 

[Value Collector]

If trade relations worsen with China, FMG would likely be last to be hit with some sort of export control or sanction. I believe they see what companies around the world "think of them". FMG has been quite fair, hasn't made any rash accusations or decisions. Instead suing for peace and good business. Anything can happen but as it stands it appears to be undervalued and a great great dividend play ?

It's at 7PE with 20% growth (higher income growth but we'll ignore that). Assuming all being the same, it should be a 20/20 company quite easily. So 200% upside.

Yep, I am seeing very limited down side risk, as I said earning could drop 75% and the current share price would still be justified, while if these earnings continue at this level or even 50% of this level, then there will be above market dividends in the pipe and potential for an eventual big move upwards in share price.

I sleep easy every night knowing those three ship loaders at our port are filling ships round the clock and every 10 hours another load of Ore is on its way to market, and that each ship will earn me about $670 of dividends at current prices. It's much better than counting sheep to get to sleep hahaha.

 

[basilio]

Always interesting to read the tea leaves. This article notes the current record value and volume of Australia iron ore sales to China. (Yeaaah..) Also points out the Chinese/Rio push into Guinea iron ore is at least 6 years away from full production and then will only represent 15-20% of the current Australian output.

Also it seems industrial activity in China is still very strong and iron ore prices are not coming off their current very high levels.

Australia sees record $104bn of iron ore exports this financial year

The country’s most valuable economic export is expected to earn more than A$100 billion per year for the next half-decade.

www.mining.com

Iron ore prices jump on strong industrial activity in China

China's industrial profit surged 179% in the first two months from the year-ago period.

www.mining.com

 

[Value Collector]

Also points out the Chinese/Rio push into Guinea iron ore is at least 6 years away from full production and then will only represent 15-20% of the current Australian output.

Not to mention that in 6 years, the global economy will be bigger and more productive and consuming more steel, and will probably absorb that supply easily.