Fortescue Metals Group Limited

FMG Details

Excellent top-line and bottom-line Performance for FY19: Fortescue Metals Group Limited (ASX: FMG) is involved in the development, exploration, production, processing, and sale of iron ore. The company recently announced about the appointment of Dr Ya-Qin Zhang as a Non-Executive Director, effective from September 1, 2019.Dr Zhang is currently President of Baidu (NASDAQ: BIDU), a leading Chinese multinational technology company. During his five years with Baidu, Dr Zhang has led various key functions including technology infrastructure, consumer business, marketing and government relationships, and new business initiatives including finance, education, cloud computing, autonomous driving and global business. Prior to joining Baidu, Dr Zhang was a key executive of Microsoft Corporation for 16 years, including as Corporate Vice President for Mobile and Embedded Products, Managing Director of Microsoft Research Asia, and Chairman of Microsoft China.

FY19 (ended on June 30, 2019) Key Highlights: Ore shipped during the period was reported at 167.7 million tonnes (mt), which was 1% lower than FY18. The average revenue received during the period was reported at US$65 per dry metric tonne (dmt), up 48% as compared to previous year. Consequently, revenue for the period increased by 45% to US$9,965 Mn than previous year. Underlying EBITDA increased by 90% to US$6,047 Mn, majorly driven by improved iron ore price realisations along with consistent operational cost performance. Underlying net profit after tax for the period increased by 195% to US$3,187 Mn. The Board of Directors declared fully franked final dividend of A$0.24 per share, bringing total FY19 dividends to A$1.14, which is a 78% pay-out of full year NPAT. The record date and payment date are on September 3, 2019 and October 2, 2019, respectively.

The company’s cash on hand on June 30, 2019 increased to US$1.87 billion, with net debt reduced to US$2.1 billion, the lowest level since achieving current production capacity in FY14.


FY19 Key Metrics (Source: Company Reports)
 
FY20 Guidance: The Shipments for FY20 have been estimated at 170-175mt, which is inclusive of 17-20mt of West Pilbara Fines product. The C1 costs are expected to be in the range of US$13.25-13.75/wmt.The total capital expenditure has been estimated at US$2.4 billion, where costs incurred under Sustaining capital, Operational development, Queens Valley development, exploration and major projects (Eliwana and Iron Bridge) are US$700 million, US$200 million, US$150 million, US$140 million and US$1,200 million, respectively.The Management expects depreciation and amortisation at US$7.70/wmt for FY20. The total dividend pay-out ratio has been estimated between 50 and 80 % of full year NPAT.

Stock Recommendation: FMG’s share generated positive YTD return of 98.34%. Its gross margin, EBITDA margin and net margin for FY19 stood at 48.7%, 60.2% and 32.0%, better than the industry median of 40.7%, 30.2% and 14.8%, respectively, exhibiting decent fundamental for the company. Its ROE for FY19 stood at 31.4%, better than the industry median of 12.2%, which implies the company generated better returns for its shareholders than its peer group. Moreover, EV/EBITDA and Price/Cash Flow (on Next Twelve Months, NTM basis) stand at 2.6x and 3.5x, lower than the industry median of 2.8x and 4.5x, respectively. Hence, considering the aforesaid facts and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $7.660, up 1.457% on August 28, 2019.


FMG Daily Technical Chart (Source: Thomson Reuters)
 

BHP Group Limited

BHP Details

FY19 Net Profit After Tax increased by 124% than previous year: BHP Group Limited (ASX: BHP) is involved in the petroleum exploration, development and production of Oil and Gas; mining of copper, silver, lead, zinc, molybdenum, uranium and gold; mining of iron ore; and mining of metallurgical coal and energy coal. 

The company recently announced a change in its directors’ interest, where Andrew Mackenzie acquired 63,486 shares and disposed-off 31,309 shares taking the final holdings to 391,433 shares, 1,369,104 performance shares under the Long-Term Incentive Plan and 52,061 deferred shares under the Short-Term Incentive Plan.

FY19 (ended on June 30, 2019) Key Highlights: Revenue from continuing operations increased by 3% to US$44,288 Mn, whereas revenue from discontinued operations decreased by 61% to US$851 Mn. Resultantly, total revenue remained flat at US$45,139 Mn. Profit after taxation from continuing operations attributable to the members of the BHP Group increased by 30% to US$8,648 Mn. The company reported a loss after taxation from discontinued operations attributable to the members of the BHP Group, which increased by 88% to US$342 Mn. Resultantly, net profit after taxation attributable to the member of the BHP Group was reported at US$8,306 Mn, an increase of 124% on previous year. The Board of Directors declared (fully franked) final dividend of US 78 cents, with record date and payment date on September 6, 2019 and September 25, 2019, respectively.


FY19 Income Statement (Source: Company Reports)

What to expect: As per the release, the group expects global growth to register near the lower end of a range of 3¼ per cent to 3¾ per cent for the 2019 calendar year.Any further escalation in trade protection or loss of business confidence is a downside risk for consensus views of the world economy, commodity demand and energy and metals prices in the FY2020. Based on the economic and commodity outlook, the group has provided FY20 guidance.


FY20 Production Guidance (Source: Company Reports)

Stock Recommendation: BHP’s share generated positive YTD return of 8.23%. EBITDA margin and net margin for FY19 stood at 51.3% and 21.5%, better than the industry median of 30.2% and 14.8%, respectively, implying a decent fundamental for the company. Its ROE for FY19 stood at 16.8%, better than the industry median of 12.2%, which implies the company generated a better return for its shareholders than its peer group. Its current ratio for FY19 stood at 1.89x, better than the industry median of 1.72x, which implies that the company is in a better position to address its short-term obligations than its peer group.Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $35.420, up 1.345% on August 28, 2019.


BHP Daily Technical Chart (Source: Thomson Reuters) 

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.