From Credit Suisee:
■ Move to NEUTRAL: We raise our 12-month price target from $4.00 to $4.30 (in line with our DCF) and downgrade our rating from Outperform to NEUTRAL. FMG shares are up 40% in the past month. ■ FY16 ends strongly: Post market close yesterday FMG advised that FY16 shipments of iron ore are 169.4mt (guidance at 165mt). The full 4Q report comes out on 27 July. With the 3Q report, FMG noted that shipments were running ahead of guidance rates given mild weather in March. June qtr weather also looks to have been kind. We have full year shipments at 166.7mt in our model and given the quarterly report is imminent, we have not revised FY16 numbers. FMG 4Q shipments were 43.4mt, an annualised rate of 174.6mtpa.
■ Run to valuation levels: With our most recent commodity changes (Australian Miners ex Au, Cu – New price deck; Iron ore dominates) we put through large upgrades to FMG FY17 earnings and forecast net debt (including prepayments) to fall to US$4.2bn at end FY17. We raised our DCF to A$4.27/shr (end FY17) as we removed the dilutive impact of a theoretical capital raising) given b/sheet concerns have faded. On our revised iron ore price deck (US$50/t, $45 and $40 in CY16,17,18) we have FMG trading on price/cash flow of 4.9x in FY17 and 6.9x in FY18 and EV/EBITDA of 5.3x and 7.6x.
