Fortescue Metals Group Ltd

 
Higher Realisation Price to aid Stellar Profitability:  Fortescue Metals Group Ltd (ASX: FMG) is engaged in the exploration, development, production, processing and sale of iron ore.Recently, the company announced that one of its directors, named, Penelope Bingham-Hall,has acquired 1,120 Ordinary Shares at a value consideration of $9,819.48.

Key Takeaways from FY19 Results: The company recently announced full-year results for FY19, wherein the company posted revenue at US$9,965 million, up 45% on y-o-y basis and reported net profit after tax at US$3,187 million as compared to US$878 million in FY18. The company reported Underlying EBITDA of US$6,047 million, increased 90% on y-o-y basis. The company reported Ore shipped at 167.7 million tonnes (mt) during the year, which was 1% higher than previous financial year. During the year, the company reported processed tonnes at 176.9 mt as compared to 165.7 mt in FY18. The average realized price of the ore stood at US$65/dmt, which was 48% higher than US$44/dmt recorded in previous financial year.


Key Operating Highlights of FY19 (Source: Company Reports)

The company paid a fully franked dividend of AUD 1.14 during FY19 which was higher by 396% on FY18. Currently, annualized dividend yield for the stock stands at 5.02%.

Outlook: As per the Management guidance for FY20, the Company expects 170-175mt in shipments, including 17-20mt of West Pilbara Fines product. C1 costs are expected to be in the range of US$13.25-13.75/wmt. The Management estimates a total dividend pay-out ratio within 50% to 80% of full-year NPAT. The Company also provided guidance for a capital expenditure of US$2.4 billion for FY20.
Stock Recommendation: The stock of FMG is quoting at $8.460 with a market capitalization of $26.36 billion. The stock price is trading near the upper band of its 52-week trading range of $3.256 and $9.550. The stock has generated a return of -4.14% and 11.98% during the last three-month and six-months, respectively. During FY19, the business generated operating margin and net margin of ~48.4% and ~32%, which were above the industry median of 21.5% and 11%, respectively. The stock is available at a price to earnings multiples of 5.1x on Next Twelve Months (NTM) basis as compared to the industry median of 6.8x. On Enterprise Value to sales (EV/Sales) multiple basis, the stock is trading at 1.8x on NTM basis as compared to the industry median of 1.4x. FY19 results reflected the additions to Fortescue’s product suite, record processed tonnes as well as the continued focus on productivity and efficiency initiatives, which helped the Company to maintain low cost of production and contributed to the stellar FY19 financial performance. Considering the aforesaid facts, current trading levels and business prospects, we recommend a “Hold” rating on the stock at the current market price of $8.460, down 1.168% as on 10 October 2019.
 

Magellan Financial Group Limited

Stellar Operating Performance in FY19: Magellan Financial Group Limited (ASX: MFG) operates in international investment funds to high net worth and retail investors in Australia and New Zealand, and institutional investors globally. Recently, the company reported $462 million of net inflows during the month of September 2019, including net retail inflows of $175 million and net institutional inflows of $287 million.

FY19 Operational Highlights for the period ending 30 June 2019: MFG declared full-year results for FY19, wherein the company reported adjusted revenue of $577.3 million, up 28% from FY18 and net profit after tax of $376.9 million as compared to $211.8 million during the previous financial year. The business delivered stellar growth in performance fees before tax at 110% on y-o-y basis to $83.6 million. Management and services fees during the year stood at $472.5 million as compared to $385.8 million on FY17. The company reported Average Funds Under Management at $75.8 billion, increased 28% from the previous financial year.


FY19 Financial Highlights (Source: Company Reports)

The Board of Directors paid a dividend of AUD 1.11400 on ordinary fully paid shares during the second half of FY19. At CMP of $47.37, the annualized dividend yield of the stock stands at 3.81%.

Outlook: As per the Management Guidance, Funds Management segment expenses in FY20 is expected to come in within the range of $115-$120 million.

Stock Recommendation: The stock of MFG is trading at $47.370 with a market capitalization of ~$8.86 billion. The stock is trading towards the upper band of its 52-week trading range of $22.55 to $62.60. The stock has generated returns of -10.82% and 24.78% during the last three months and six-months, respectively. The stock price has corrected 3.87% and 9% during the last five days (as on 9 October 2019) and one month, respectively. The stock is available at a price to book multiples of 12.1x on trailing twelve months (TTM) basis as compared to the industry median of 1.2x. The stock is quoting at a price to earnings multiples of 22.82x on TTM basis as compared to the industry median of 15.6x. The business has delivered decent financial numbers in the recent past and the stock price has moved accordingly. Considering the aforesaid facts, we believe that most of the positives are factored in at the current trading levels. Hence, we recommend an ‘Expensive’ rating on the stock at the current market price of $47.370, down 2.611% as on 10 October 2019.

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