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BHP and FMG share prices: analyst forecasts & 2020 dividend outlook

We examine some commentary around the FY20 dividend outlook for both miners – as well as the expected share price returns for FMG and BHP over the next 12-months, according to Bloomberg Data.

BHP & FMG share prices in focus Source: Bloomberg

Equities – in Australia and across the globe – continue to power forward.

The ASX 200 itself just passed the 7000 mark, and as we this morning reported: Rio Tinto (ASX: RIO) – the $38.38bn mining and metals company – today revealed a good set of Q4 production results. Those results were enough to see RIO’s stock run as much as 1.77% higher by the afternoon session.

RBC analysts, looking at those results, noted that realised iron ore prices were slightly better than expected. RIO itself pointed out that 2019’s realised iron ore prices came in ~36% higher than they did in 2018.

Investors may have potentially taken bullish signs from those realised iron ore prices – as both BHP Group (ASX: BHP) and Fortescue Metals Group (ASX: FMG) saw their share prices rise today – 1.12% and 3.36%, respectively.

These gains contributed to the strong performance of Australia’s materials sector today – with that index up 1.23% or 179.1 points – by the late afternoon.

Ultimately, all this comes as speculation emerges that iron ore prices (using the 62% iron ore Fe Fines spot price as a reference) may be heading towards the US$100 per tonne mark. Iron ore prices have indeed remained elevated in recent months – after rebounding from lows of around US$75 per tonne in late-2019.

Spot iron ore prices currently sit at US$94.74 per tonne.

Taking a slight detour and looking at yesterday’s market commentary from the Metals Market Index (MMi), it was noted that:

‘As recent shipments from Australia and Brazil fall, there will be an expected supply/demand gap given that restocking is ongoing, though slowly weakening.’

As a consequence of this, and as is likely of most interest to investors, it was pointed out that:

‘Iron ore prices are expected to trade around a narrow band next week.’

With all this going on, below we look at the FY20 dividend outlook for BHP and FMG – from J.P. Morgan – as well as the average 12-month share price forecasts for both miners.

FMG share price: the analyst take

FMG has continued to outperform the market even as analysts remain sceptical.

Specifically, Fortescue (ASX: FMG) currently has a 12-month average price target of $8.85 – split between nine HOLD ratings and nine SELL ratings, according to Bloomberg Data. Morgans Financial is the most bearish of all the analysts covering the stock: with a ‘reduce’ rating and a price target of just $6.77.

By comparison to the average, mostly bearish analyst view; J.P. Morgan is the most bullish, in terms of price targets, with a NEUTRAL rating and 12-month price target of $11.00 per share.

Ultimately, the cyclical nature of the iron ore market likely explains why analysts are mixed on FMG’s prospects. Indeed, such a point looks well reflected in FMG’s top-line growth estimates. Here and although analysts expect FMG’s revenue to increase 13.7% in FY20 – to US$11,333m – analysts also expect it to drop by 20.6% (on average) to US$9,000.7m in FY21, according to Bloomberg Data.

Examining FMG’s dividend outlook, J.P. Morgan argues that ‘the company is likely to pay higher dividends of 8-12% vs ~5-6% for BHP/RIO.’

All up, this has led J.P. Morgan to forecast significantly above-market yields for FMG over the coming years: 11.3% in FY20, 7.6% in FY21 and 8.2% in FY22.

BHP share price: a mixed outlook

Of the 20 analysts covering BHP, 12 rate the stock a HOLD, six a BUY and two a SELL, according to Bloomberg Data. Though an evidently more favourable consensus than Fortescue, BHP’s average 12-month share price target of $37.08 still implies potential downside for investors at current price levels.

According to J.P. Morgan, BHP’s dividend is also expected to come in lower in FY20 – after a strong FY19. Here, the investment bank is expecting a dividend yield of 5.7% in FY20 – down from 9.3% in FY19.

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