Fortescue Metals Group Ltd

FMG Details

Joint Venture Agreement with Carawine: Fortescue Metals Group Ltd (ASX: FMG) is a metal and mining company, mainly involved in the mining, processing, and transporting of iron ore. The market capitalisation of the company stood at ~$49.97 billion as on 18^th September 2020. The company recently noted that Carawine Resources Limited has reached an agreement to include Carawine’s “Eider” tenement in the Coolbro JVA with FMG Resources Pty Ltd, a wholly-owned subsidiary of FMG. Under the terms of the agreement, Fortescue would pay Carawine A$50,000 in cash within 30 days of the later of execution of the Amended Agreement and receipt of a tax invoice. In addition, Fortescue possesses the right to earn a 51% interest in the expanded Coolbro JVA tenements by incurring an additional $100,000 on exploration.

Decent Growth in Top-line and Bottom-line: During FY20, the company reported underlying EBITDA amounting to ~US$8.4 billion, reflecting a rise of 38% on the previous year. Further, the company’s reported net profit after tax (NPAT) of US$4.7 billion with YoY growth of 49%. This indicates the continued ability of the company’s operations to generate strong cash flows via the successful execution of its integrated operations and marketing strategy. For FY20, the company declared US$3.7 billion in dividends, representing a payout ratio of 77% of full-year NPAT.

Key Financials (Source: Company Reports)

Guidance: For FY21, the company is expecting to report total iron ore shipments in the range of 175 - 180mt. The capital expenditure for FY21 is expected of between US$3.0 - US$3.4 billion.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Current ratio of the company stood at 2.25x in FY20 as compared to the industry median of 1.76x, reflecting decent capabilities of the company to pay its short-term obligations. The stock of FMG is inclined towards its 52-week high level of $19.560. On the technical analysis front, the stock of FMG has a support level of ~$13.625 and a resistance level of ~$17.87. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a price of the upside of high single-digit (in percentage terms). For the purpose, we have taken peers such as BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), OZ Minerals Ltd (ASX: OZL) etc. Therefore, considering decent performance in FY20, decent liquidity position, and decent dividend payment, we give “Hold” recommendation on the stock at the current market price of $16.390 per share, up by 0.986% on 18^th September 2020.

FMG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Janus Henderson Group PLC

JHG Details

Share Buy Back Update: Janus Henderson Group PLC (ASX: JHG) is a leading global active asset manager that provides a broad range of investment solutions to investors to help them achieve their long-term financial goals. On 17^th September 2020, the company has purchased 15,544 CDIs at an average price of A$27.36 per CDI with respect to share buyback programme.

Growth in AUM: During Q2 FY20, the asset under management of the company stood at US$336.7 billion, reflecting a growth of 14% as there was improvement in global markets. During the quarter, the company reported operating income of US$106.7 million against US$(332.4) million in Q1 FY20. Diluted earnings per share for the period stood at US$0.55 as compared to US$(1.35) of the previous quarter. The company declared a quarterly dividend of US$0.36 per share, which has been paid on 26^th August 2020.

Key Financials (Source: Company Reports)

Growth Strategy: The company’s strategy revolves around producing dependable investment outcomes, excel in client experience, focus on increasing operational efficiency, and development of new growth initiatives. The company is scheduled to release its Q3 FY20 results on 29^th October 2020.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Month

Stock Recommendation: Debt to equity of the company stood at 0.07x in Q2 FY20 as compared to the industry median of 0.45x. The stock of JHG has corrected 7.03% and 17.84% in the past one and three months, respectively. As a result, the stock is trading towards its 52-week low level of $20.680. On a technical front, the stock of FMG has a support level of ~$26.15 and a resistance level of ~$29.793. We have valued the stock using Price to Book Value multiple based illustrative relative valuation method and arrived at a target with an upside of lower double-digit (in percentage terms). For the purpose, we have taken peers such as Perpetual Ltd (ASX: PPT), IOOF Holdings Ltd (ASX: IFL) and Link Administration Holdings Ltd (ASX: LNK). Thus, considering the growth in AUM and operating income, deleveraged balance sheet and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $27.230 per share, down by 0.11% on 18^th September 2020.

JHG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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