Fortescue (FMG) Reports – Is It Time To Buy?

Fortescue Metals Group Limited (ASX: FMG) reported its FY19 result yesterday, with shares down more than 5% by market close. Is this a buying opportunity?

Fortescue Metals Group was founded in 2003 by Andrew Forrest, who is now one of Australia’s wealthiest people. The company is a global leader in the iron ore industry, known for its leading development of world class infrastructure and mining assets in the Pilbara region of Western Australia. The vast majority of Fortescue’s iron ore, which is a steel-making ingredient, is shipped and sold to Chinese customers.

Fortescue Reports Impressive FY19 Results

Fortescue reported that its mined ore tonnes grew 12% to 206.7 million wet metric tonnes (wmt), processed tonnes rose by 7% to 176.9 million wmt, however shipped tonnes dropped 1% to 167.7 million wmt.

Due to solid demand and a fall in supply due to Brazilian miner Vale’s problems in Brazil, the ore price achieved by Fortescue jumped 48% to US$65 per dry metrics tonne (dmt). This was a large reason why revenue increased by 45% to US$9.97 billion.

Underlying EBITDA shot up 90% to US$6.05 billion, while underlying net profit rocketed 195% to US$3.19 billion.

The reported profit also came in at US$3.19 billion, representing a 263% increase from last year’s reported profit. Market consensus figures were for a net profit of US$2.6 billion, so it was a stronger result than investors were expecting in this regard.

Dividend Increases

The iron ore miner’s Board decided to declare a final fully franked dividend of AUD $0.24 per share. This brings the total year dividend to $1.14 per share, an increase of 396% compared to FY18 (with a 78% payout ratio of net profit).

The Rask Finance video below explains franking credits:

Is The Fortescue Share Price A Buy?

Fortescue has guided for 170mt to 175mt of shipments and C1 costs to be in the range of US$13.25 per wmt to US$13.75 per wmt.

The company will also be spending US$2.4 billion on capital expenditure, which is to be split between various elements with developments and exploration.

I think an investment decision in Fortescue depends on what the iron ore price does over the next year. It’s generally best not to buy resource shares at the top of the cycle, which is where we might be right now.

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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