Fortescue Metals Group Limited

FMG Shipped More Than 1.1 Bn Tonne Of Iron Ore:Metal & Mining company, Fortescue Metals Group Limited (ASX: FMG) has more than 16 years of experience in exploring & developing major iron ore deposits and constructing mines globally. The company aims to become a major supplier to China and expanding its footprint into India, Japan & South Korea. Recently, the company announced its AICC presentation where it reported shipment of more than 1.1 Bn tonne of iron ore. Its production rate stood at ~170 mtpa. It was the core supplier to China, where it has supplied 27mt of iron ore to date.

In another update, the company has received approval for one of its Iron Bridge Magnetite Project to $ 2.6 billion expansion.It will enable FMG to support the development of Stage 2 of the project (holds Australia’s largest JORC compliant magnetite resource). On the financial front, Revenue for the company increased by 10.35% to $3,540 Mn in H1FY19 as compared to H2FY18, which was driven by an increase in realised iron ore price by 10% to US$47/dmt in H1FY19 as compared to H2FY18. Net profit after tax increased by ~227% pcp to $644 Mn as compared to H2FY18. The Board of Directors declared a fully franked interim dividend of A$0.19 per share and a fully franked special dividend of A$0.11 per share for the period. This summarized a total dividend payment of A$0.30 per share for the period of six months which was paid on March 22, 2019.


H1FY19 P&L Statement (Source: Company Reports)

What to expect from the company:The company is expected to ship 165 mt to 173 mt in FY2019 with H2FY19 shipment better than H1FY19. Higher volumes are expected to contribute to lower C1 costs.The full year cost is expected to be in the upper end of US$12-US$13/wmt range. Its average strip ratio is expected to be close to 1.5. Its total capital expenditure is expected to stand at US$1.2 Bn, and depreciation & amortization is expected to stand at US$7.1/wmt.

Stock Recommendation:Fortescue’s share generated positive YTD return of 87.57% and is trading towards the 52-week higher level of $7.890. EBITDA margin at 46% and Net margin at 18.2% in 1HFY19 were above the industry median of 35.8% (EBITDA margins) and 13.3% (net margins) implying a decent financial position of the company at the current juncture. Its cash conversion cycle stood at 7 days in H1FY19 better than the industry median of 47.6 days, which implies that the company uses its short-term assets and liabilities efficiently than its peer group. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $7.790 (up 1.83% on April 03, 2019).
 

Rio Tinto Limited

Rio Resumes Operation After Cyclone Veronica: Anglo-Australian multinational, Rio Tinto Limited (ASX: RIO) explores, develops, and processes mineral resource worldwide. It offers silver, copper, gold, iron ore, aluminium, uranium, etc.

It recently announced about the resumption of its iron-ore operation at Pilbara, Western Australia following the passing of Tropical Cyclone Veronica. The Cyclone along with the fire at Cape Lambert A in January, is expected to result in loss of around 14 Mn tonnes of production in 2019.

In its annual report, the company posted an increase in consolidated sales revenue by $0.5 Bn to $40.5 Bn in FY18 as compared to FY17. This was driven by an increase in volumes of iron ore and copper, and higher prices for aluminium and copper offset by the impact of lower iron ore prices and coal divestments. Its underlying EBITDA was 2% lower at $18.1 Bn in FY18 as compared to FY17. This was due to a rise in energy and raw material costs.


FY2018 Financial Metrics (Source: Company Reports)

What to expect from the company:Due to the Cyclone and fire at Cape Lambert A, the company has presented new guidance of production in the range between 338 Mn tonnes and 350 Mn tonnes (100 per cent basis).

Economic Outlook:The global growth is expected to weaken due to slowing economic growth in China despite ongoing tariff negotiations with the U.S. Besides this, other markets such as European and Japanese are expected to be modest due to weakening global demand and negative shocks such as tapering of quantitative easing across Europe, Brexit possibility, and natural disasters in Japan. This might affect RIO’s export to these markets.

Stock Recommendation: Rio’s share generated positive YTD return of 33.08% and is trading close to its 52 weeks high of $100.45. On technical analysis front, the stock is trading in the over-bought region of Relative Strength Index (14 days) which implies that the stock might see some correction in the near future. Considering the aforesaid facts and current trading level, we give an “Expensive” recommendation on the stock at the current market price of $100.32 (up 1.92% on April 03, 2019).

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.