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Fortescue Metals Group (FMG) 2020 earnings preview

We look at some of the key things investors should be aware of before iron ore giant Fortescue Metals Group reports its full-year results to the market.

When is the company set to report?

Iron ore giant Fortescue Metals Group (FMG) is set to report its full-year (FY20) results to the market next Monday, 24 August.

Operational summary: FY20 marks a record year for Fortescue

With FMG reporting its June (full-year) production results at the end of July, investors have moderate clarity on what to expect from the miner’s FY20 release.

The key takeaways from Fortescue’s June production report were:

  • FMG beat on production guidance, with 178.2 million shipments of iron ore for the full year.
  • The company has guided for FY21 iron ore shipments of between 175-180 million tonnes.
  • FY21 CAPEX guided for US$3.0-3.4 billion.
  • Costs remain low: C1 costs came in at US$12.94 per wet metric tonne in FY20.
  • The company achieved average revenue of US$79 per dry metric tonne in fiscal 2020, up 21% YoY.
  • Despite the coronavirus pandemic, demand for FMG’s products remains strong, the company noted.

Click here to read our complete summary of FMG’s June Production Report.

FMG share price: How analysts view the stock

Overall, the FMG share price has rallied strongly in 2020, as iron ore continues to trade at elevated levels. All up, since January, the pure play miner’s stock is up an astonishing 65%, far outpacing the ASX 200 benchmark, down 8.5% YTD.

Mind you, despite iron ore futures trading confidently over US$120 per tonne – with the CME front month futures contract last trading at US$122.47 per tonne – analysts remain mixed on the stock, assigning it a Hold rating on average, according to the Wall Street Journal. On a more granular level, FMG has 2 Buy ratings, 12 Hold ratings and 3 Sell ratings, also according to the Wall Street Journal.

Bearish sentiment around the stock mainly appears linked to divergent outlooks for the short and long-term price of iron ore.

Citibank analysts, for example, who have a Sell rating on the stock, recently argued that while the miner’s efforts to deleverage its balance sheet rank as a key positive, the investment bank’s long-term (LT) iron ore price outlook paints a potentially dour outlook for FMG's earnings and dividends.

Citi’s LT iron ore forecast currently sits at US$81 per tonne. At such price levels the investment bank sees better value in rivals BHP Group (BHP) and Rio Tinto (RIO).

‘We believe FMG's share price recently has run ahead of our underlying valuation,’ the investment bank said.

Citi has a 12-month price target of $11.70 per share on FMG.

By comparison, analysts from Macquarie Wealth Management remain bullish on the miner, recently reiterating their Outperform rating.

FMG remains Macquarie's favoured iron ore stock out of BHP and RIO, with it being more generally noted that ‘We remain positive on stocks with iron-ore exposure due to strong cash flow yields and earnings upgrade momentum.’

Macquarie has a 12-month price target of $18.00 per share on FMG.

Want to trade FMG before earnings?

You can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Fortescue using CFDs, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘FMG’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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