Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

A buy-side analyst with over 15 years of experience investing in Asian markets and specializing in the mid-small cap space, emphasizing value investing in companies with good free cash flows/dividends and long-term holding horizons. 
Exempt Financial Adviser (EFA) under CrossASEAN Research Pte Ltd. It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity, Bottom-up Analyst

Fortescue: Iron Ore at $200/Ton, A Scenario Analysis

Fortescue: A Big Dividend Coming Your Way!

Fortescue Metals: More Upside In the Near Term

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

<p>With the recent correction in iron ore stocks due to the Tangshan steel production cuts negative sentiment, we believe better risk-reward has emerged in the name. Iron ore prices have retraced, and we believe that an attractive risk-reward is beginning to emerge for <a href="https://www.smartkarma.com/entities/fortescue-metals-group-ltd" target="_blank" data-smartkarma-citation="entities:41:1" rel="noopener">Fortescue Metals (FMG AU)</a> once again. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/199/068/original/image?1617686026" class="editor-image img-responsive" data-smartkarma-image-id="199068"></figure><p><em>Source: SGX, Bloomberg</em></p><h3>Key thesis for investment in the company </h3><ul>
<li>
<strong>Attractive FCF yields and dividend yields at current spot prices:</strong> At the current spot price of 160$/ton, the FCF yield is close to 18%, and the dividend yield is 14%.  If prices were to decline to 120$/ton,  we would still see FCF yields of 10% and dividend yields of 9%.</li>
<li>
<strong>Chinese steel production growth continues to be strong despite Tangshan cuts. We forecast 10%</strong> steel production growth in March. The economy also reported strong numbers with a manufacturing PMI of 51.9 (Vs. Consensus estimates of 51.2). </li>
<li>
<strong>Risks on the supply of iron ore from Brazil could emerge</strong> as the Covid impact worsens.</li>
</ul><h3>Key Risks</h3><ul>
<li> <strong>China Tightening: </strong>A scenario could arise where China tightens the economy. This will be visible in the credit-balance growth slowing and the TSF coming down given last year was a high base in March. Consensus expectations for TSF are 3.8 trillion RMB for March ( Vs. 5.2 trillion RMB in March 2020). A lower number than 3.8 trillion could impact the market sentiment and send the iron ore price lower.</li>
<li>
<strong>Production cuts like the ones in Tangshan</strong> extending into other regions.</li>
</ul>

With the recent correction in iron ore stocks due to the Tangshan steel production cuts negative sentiment, we believe better risk-reward has emerged in the name. Iron ore prices have retraced, and we believe that an attractive risk-reward is beginning to emerge for Fortescue Metals (FMG AU) once again. Source: SGX, BloombergKey thesis for investment in the company 

Attractive FCF yields and dividend yields at current spot prices: At the current spot price of 160$/ton, the FCF yield is close to 18%, and the dividend yield is 14%.  If prices were to decline to 120$/ton,  we would still see FCF yields of 10% and dividend yields of 9%.

Chinese steel production growth continues to be strong despite Tangshan cuts. We forecast 10% steel production growth in March. The economy also reported strong numbers with a manufacturing PMI of 51.9 (Vs. Consensus estimates of 51.2). 

Risks on the supply of iron ore from Brazil could emerge as the Covid impact worsens.
Key Risks
 China Tightening: A scenario could arise where China tightens the economy. This will be visible in the credit-balance growth slowing and the TSF coming down given last year was a high base in March. Consensus expectations for TSF are 3.8 trillion RMB for March ( Vs. 5.2 trillion RMB in March 2020). A lower number than 3.8 trillion could impact the market sentiment and send the iron ore price lower.

Production cuts like the ones in Tangshan extending into other regions.


Fortescue Short-Term Better Risk Reward Emerging