From Credit Suisse:
■ FY16 highlights: EBITDA of US$3.195bn vs CS at $3.245bn (cons. $2.98bn). Net profit at $985mn versus CS at $1.1bn. Dividend for FY16 at A$0.15 for the full year (final div of A$0.12), fully franked (payout ratio 36%). Net debt was US$5.2bn (known) excluding pre-payments. Pre-payment balances were $571mn at 30 June. C1 cash operating costs of US$15.4/wmt with June half at $14.3/wmt. Total delivered cost to customers (inc. freight and royalties) decreased to US$23/wmt from $38/wmt in FY15.
■ FY17 guidance unchanged: 165mt-170mt of shipments. US$12-13/wmt C1 cost. Average strip ratios of 1.1x. Price realisations of between 85% and 90% of the Platts 62 CFR index and an average moisture content of 8.5%. Sustaining capex of US$2.00/wmt. D&A US$7.10/wmt shipped.
■ Earnings changes minimal: EBITDA estimates for FY17 and FY18 are unchanged. Slightly lower D&A sees EBIT revised up 1-2%. Adjustments to interest and taxes result in FY17 and FY18 EPS being revised down 1% and 4%, respectively. Dividend forecasts are raised substantially in FY17 to A$0.17/.shr for a dividend yield of 3.5% but we don’t see this being sustained into FY18 as iron ore prices retrace.
■ Downgrade rating to Underperform: FMG shares have had a very good run – up 21% in a month, 68% in three months and 148% in six months. We’ve set our revised target price at $4.50/shr, the mid-point of our spotbased and base case DCF valuations. With China steel production expected to slow into October/November, we do expect China steel price to moderate and iron ore prices to follow suit. As a result, we are downgrading our FMG rating from Neutral to UNDERPERFORM. We like the FMG story, just not at the current share price and heading into the period of seasonal steel production weakness.
Pretty much sums up my view.
