Leading broker hits FMG shares with $9.50 price target

Here are some of the key things you need to know about FMG’s latest $600 million bond offering, as well as Shaw and Partner’s recent note on the iron ore miner.

Iron ore prices remain volatile

Even as volatility in the markets remain, Shaw and Partners have a taken a favourable view on the iron ore giant Fortescue Metals Group Ltd (ASX: FMG), slapping it with a buy rating and 12-month price target of A$9.50 in a recent research note.

This vote of confidence comes off the back of a volatile period for commodities. In July, iron ore prices topped-out at $120 per tonne, before slumping to a low of around $80 per tonne in August.

Mind you, such downward pressure still looms large, even when considering Shaw’s optimism. As IG Market Analyst Kyle Rodda tweeted yesterday, JP Morgan recently cut its iron ore price target to $81 per tonne – as global growth concerns persist, and trade tensions remain unresolved.

FMG share price forecast in focus

Even when considering these macro-level headwinds, Shaw seems to like the company-level prospects of Fortescue Metals Group Ltd (ASX: FMG).

Shaw, impressive by Fortescue management, has placed a 12-month price target of A$9.50 per share and a ‘buy’ rating on FMG.

Such a price forecast would imply potential upside of roughly 8% on FMG’s current share price.

FMG's debt profile at a glance

Primarily, Shaw looks to be impressed by FMG’s focus on strategically refinancing its debt over-time – which has seen the company’s gross and net debt at their lowest levels since 2012.

Specifically, last Friday, FMG revealed ‘the successful completion of the US$600 million offering of Senior Unsecured notes.'

These notes carry with them an interest rate of 4.5% and are set to mature on 15 September 2027.

FMG is also currently in the process of negotiating an extension 'for the Term Loan maturities of US$600 million, to 2025 on the same terms and conditions,’ as the new notes mentioned above.

Speaking of these restructuring activities, FMG's CEO, Elizabeth Gaines maintained that:

'Fortescue's balance sheet is structured on investment grade terms which have allowed us to take advantage of market conditions to extend the maturity profile of Fortescue’s debt at a low cost.’

Indeed, while FMG's cost of debt is anticipated to remain roughly the same – FMG’s refinancing efforts will see the debt that is due in 2022 significantly reduced: from $2.15bn to $750m, according to Shaw.

Shaw also highlights FMG's corporate culture as a key strength for the company.

Final thoughts

While iron ore miners faced a difficult month in August, September looks to be more stable month according to Shaw.

Indeed, coming off August lows and weaker iron ore prices, the Fortescue Metals Group Ltd share price has already risen 21% in the last 30-days.

FMG’s bullish share price activity from the last month has continued today, rising some 3.19% – to A$8.72 per share, as of 10:59 AEST.


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