From Morgan Stanley:
We believe the share price will fall in absolute terms over the next 60 days. This is because th estock has traded up recently, making short term valuation much less compelling.
The iron ore price is falling away from recent highs as the Chinese de-stocking cycle commences – a usual seasonal pattern touched on in the’May’s turning point’ report (10-May-16).
FMG’s efforts to reduce its unit costs have increased its ability to deal with a period of low prices, but we expect the equity price will follow the direction of the commodity. The risk to this RTI is further details of the proposed FMG-ValeJV being released and well received, or further early debt reduction creating support for the equity.
Bull case(20% weighting) – A$4.10/sh: Bull case iron ore and currency forecasts: Greater efficiencies lead to higher production and lower cash costs compared to our base case without significant capex.
Base case(60% weighting) – A$1.95/sh: Base case iron ore and currency forecasts: Production and costs largely in line with company guidance.
Bear case(20% weighting) – A$0.50/sh:Lower bear case iron ore and currency forecasts: Production and costs move adversely alongside capex overruns. Our price target of A$2.10/sh is calculated by blending our valuations under the three scenarios by their respective weightings.
