The two charts destroying Fortescue

From UBS via BI:

fortescue-geo-ubs fortescue-product-ubs

What an absurd firm. The funny part is that it’s not quantitatively different to the much loved RIO.

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Comments

  1. #DefinitelyNotAbsurd

    FMG :

    Allows investors to specifically focus on China and Iron Ore – a rarity and one to be prized therefore. Many investors value this type of high-beta share – it enables absolute portfolio focus versus the often under-performing diversified company. It’s historical performance – on the way down and on the way up – bears virtue to the aforementioned.

    Portfolio theory, Mate … get a handle on it … it may help.

    That some have been so very wrong recently on FMG and iron-ore may be the explaining factor to ridicule.

  2. What a cretinous statement “Absurd”

    You can easily argue it either way. Finance theory as stated by the gentleman above would argue that firms diversifying while their shareholders do also is silly.

    Anyway this entire blog site has gone to the dogs; all of the bloggers on here used to highlight and correct the ignorant opinions of the MSM. Writers who were so drunk on their own importance that they rarely added any fact or argument to their articles on economics and finance.

    You, and your colleagues, have become what you fought against. Your (well earned) success has given you the cataracts you pointed out in others. You have become blinded by your own self importance and frankly the quality of journalism and writing has been getting worse for months. This was the last straw.

    I wont be renewing my subscription next year unless you pull your fingers out and get back to what you were once extremely bloody good at.

    Rant over.

    • KlimashkinaSydney

      Won’t comment on the rant, but yeah, It IS an iron ore firm, and it IS sending it over to China. It never really billed itself as anything but that, right? So buyer beware.

      • Been an reader for many of years and I do not spot your concerns, not one bit. To counter your words I’ll be purchasing a subscription soon.

        I would like to add that many of the writers have been on holiday it the articles were lacking during that period. Oh well?

    • To the contrary WRAL, I just subscribed after being a lurker for many years. MB’s calls on dollar-exposed industrials in 2013 (reaffirmed recently), the fall in iron ore and the collapse in AUD and interest rates (well ahead of the pack) justify the cover price many, many times over.

      How can you take exception to the above charts unless you’re long/employed by FMG in this market?

      They’re just alerting us to a bit of amusing info we may have otherwise missed.

      Part of the appeal of this site is the work/time they spend on aggregation. Considering the value of your undoubtedly expensive time (mining lobbyists don’t come cheap), is that not worth the measly cover price alone?

      I smell a (paid) rat here.

      • [email protected]

        well said

      • I have been a long term MB reader and appreciated all the above statements you make.

        I take no exception to the charts, they are accurate, I have appreciated the analysis on Iron Ore, LNG, Coal …. all of it.

        The commentary regarding FMG’s failed business model and extremely uncertain outlook that has been on here for years has been accurate, enlightening and often entertaining….

        I have just been getting more and more frustrated by the decline in the standards on here, these guys have become what they disliked. They increasingly put opinion down as fact, dress their views up as analysis, turn to hyperbole and increasingly peddle their own view rather than deliver strong analysis and well reasoned and evidence based argument. They fail where they used to succeed.

        The use of absurd to describe a business model that in many ways represents textbook financial theory is simply laziness and gloating.

        Its a tiny crime but a straw that broke the camels back – my rant is not about FMG – its mourning for MB as it used to be.

    • It is self-evident that FMG is an absurd firm, with a structure that combines intrinsic volatility with high leverage that will very likely destroy it.

      Sure that gives you high returns on the upside but it’s an extremely high risk business model. I didn’t say absurd “investor”, I said absurd “firm”. History is bearing that out.

      As for the entire site going to the dogs, I’ve been enjoying a little schadenfreude (idiocy spreads and the like) as the world falls into line behind MB but that’s understandable, no? I’ve also got to keep it entertaining.

      There’s no less analysis than before. The rigor is exactly the same. Every judgement is still thought through. The data richness has deepened considerably. We have allegiance to nobody and no agenda.

      Comparing this to shallow MSM commentary isn’t very rigorous, if I may say so!

      • H&H – High leverage is the key capital management issue.

        For a firm facing cyclical pricing / profitability and market volatility it should be equity funded – full stop.

        Shareholders themselves can use leverage to suit their circumstances and risk appetite.

  3. FMG up 2.5% today and about the same as Sydney RE.
    Both benefit from the unique ‘Southern Cross’ golden gross where the more you borrow, well, the more you’ll ‘make’.

  4. ErmingtonPlumbing

    Mmm…….Revenue by geography, 100% China.

    Operating earnings by product, 100% Iron ore.

    Is it just me, or does anyone else find it “absurd”
    , that anyone would use a couple of pie charts to illustrate these 2 very basic facts?

    • Visual impact. Different bits of your brain process visual information and written information.

      I suspect visual understanding and memory works at a deeper level than text.

  5. [email protected]

    A perfect balance for a soon to be SOE, what?

  6. I had beers with a few FMG crew over the weekend. Twiggy was up there all last week (with a truckload of investors), all is well and it is full steam ahead. No problems at all was my take out of it and the share price will continue to rise.

    • [email protected]

      Start calling you cousin Bill soon…Bill Forrest that is…

      Coincidently I’ve heard similar yarns from fifo peeps.

      Asset sales on the cards.. spinoffs … something is afoot

    • ErmingtonPlumbing

      I saw Twiggy speak on BBQ hill Tuesday night, the 4 time I’ve seen him do so at CB.
      It was the first time that he didn’t passionately state…..”this is the place where the dream all began!”

      Instead he soberly informed those there that “the IO price would soon wander into 50s and that things were going to get lot worse before they got any better”, an honest, no bullshit appraisal of the current situation.

      He then went on to talk of FMGs greater commitment to its people and its family like value’s, unlike the other ” acronymistic” IO companies and how through this passion and advantage FMG would prevail.
      I don’t usually get sucked into the reasuring, motivational pep talks delivered by all large companies on a regular basis, but I couldn’t help but believe his sincerity.

      You got to respect the guy with 30% skin in the game and the share price back up he could easily walk away with a couple of billion in his pocket right now, instead, he’ll probably risk the lot and fight to keep the show on the road.
      Good on him if he pulls it off, I hope he does, there are a lot of good people here.

      PS,……. I’m wondering if I’m breaking any company social media policies? A good thing, I’m ready to leave this FIFO life.
      😉

      • Love it! Can MB organise a free subscription for twiggy?

        Come on…. Do it for the lols.

        I do respect the man none the less.

      • Pardon just clarifying, i love the inside info where plumbing states twiggy himself is stating $50 usd ore.

        I don’t love jobs loses, falling export value, and destruction of wealth…

      • I agree with all of EPs comments. As I’ve said many times, Twiggy is the pick of the boganaires by far.

        But he has created a firm that is intensely vulnerable and will likely pass away.

        I guess he could sell out but that would deal the firm a severe blow.

        All the passion the world won’t save it if it is uneconomic. That’s capitalism and its ruthlessness is its strength.

  7. single product, single market can be a good strategy, a few ASX companies would fit into that box but FMG is def the biggest

    making hay while the sun shines is also a good strategy, until it starts to rain 🙂

  8. As Byron mentioned above, the laser-focused nature of FMG’s business interests makes it an excellent instrument for targeted trading. Wanna go long/short ore? Nothing better. Wanna short the China story? Jim Chanos identified FMG as the best global stock with which to do so.

    FMG certainly has its place on the ASX as a trading instrument. No doubt about that. It’s just that … as a corporate strategy for a large listed company it makes FMG very vulnerable to the whims of the wagon it’s hitched itself upon.

    Ask anyone on the ground at FMG and they’ll tell you this: their corporate strategy is all over the place. Hiring one month, firing the next. Constantly changing engineering, designs, strategy, safety systems etc to respond to volatile IO market movements (and changes in cashflow). It’s hard to run a company with long-term vision on that basis — hence the sensible strategy adopted by BHP to diversify interests.

    The above charts identify precisely what makes FMG stock such an exceptional financial instrument. And also what makes it such a terribly vulnerable company.