Australian Earnings Season: what’s ahead for the big miners and iron ore prices

Rio Tinto, BHP and FMG - what the markets are expecting from this half's earnings

When do the companies report its earnings?

  • Rio Tinto reports after-market on Thursday the 1st of August 2019
  • BHP reports before-market on Tuesday the 20th of August 2019.
  • Fortescue Metals Group reports on Monday the 26th of August 2019

In the numbers: the financial metrics to watch:

Rio

BHP

FMG

Earnings Per Share (Adj+)

$3.01 (+18.8% YoY)

$1.12 (+57.7% YoY)

$0.60

Dividend

$2.32

$0.73

$0.19

What the markets are expecting from this half’s earnings:

1. Rio Tinto

The macroeconomic environment has been undoubtedly favourable for Rio Tinto’s share price. The company’s stock has rallied just shy of 30 per cent this year, trading beyond the $100 mark at stages of the first half, for the first time since 2008. The overall outperformance has come despite several operational concerns for the company, ranging from shock weather related disruptions, as well as increased operating costs. Fundamentally, the results to come from this earnings season are expected to be robust, courtesy of the rally in iron ore prices, but forward guidance is expected to show looming headwinds. Analyst consensus for Rio shares is still a “buy”, but only marginally so.

2. BHP

The rally in iron ore prices has pushed BHP shares as much as 23 per cent higher in the first half of 2019, with the company’s share’s trading at levels not witnessed since the mining boom. The market is expecting a bumper earnings season for BHP, too, following a much better than expected production update in mid-July. Forecasters are also expecting another special dividend to be paid this half by the company, owing to a greater than expected fall in the company’s net debt position. Even in light of what’s expected to be a solid half’s reporting for BHP, analysts remain bearish on the company in the short-to-medium term. Stock-analyst consensus is overwhelmingly in favour of a “hold” rating.

3. FMG

Undoubtably, Fortescue Metals Group has been the greatest beneficiary of iron ore’s tremendous rise. The company’s stock price has effectively doubled since the beginning of the year, supported too by Chinese steel-producers renewed appetite for cheaper, lower grade iron ore. Ultimately, FMG is presumed to be one of the stand-out performers this earnings season, with earnings expected to jump from $0.20 per share last half to $0.60 per share this reporting period. Although FMG, like it’s bigger-mining company cousins, is expected to outline a moderating outlook for the company, stock-analyst consensus hold a generally bullish view on its stock. 8 out of 21 surveyed stock-pickers think FMG is still a “buy”, for a consensus price target of $8.21.

Stock analyst recommendations and consensus price target:

Rio

BHP

FMG

Buy

6

4

8

Hold

5

10

7

Sell

3

2

6

Price Target

$98.09

$39.17

$8.21

What’s outlook for iron ore prices?

The rall in iron ore has been dramatic, and had come about quite unexpectedly, in 2019. Though normally a clear indicator of Chinese demand and global economic growth, this year’s climb in iron ore prices has come amid a backdrop of diminishing optimism regarding the global economy. Indeed, some element of iron ore’s precipitous climb has been tied to Chinese demand: in response to waning growth, China’s policymakers have cranked up steel production to maintain business activity. However, the core factor in the mineral’s rally has been a series of global supply disruptions: first the tragic Vale mine collapse in Brazil in January, then a series of storms in key mining areas in Northern Australia in March.

Fundamentally, that’s the dynamic that’s pushed the price of iron ore, at stages this year, over 72% higher from its January 1st levels. Logically by extension, too, it’s this dynamic that’s underpinned the out-of-cycle gains in Australia’s largest iron ore miners. It’s been a boon for investors – one that’ll manifest in robust earnings for the company’s this half. But how long can the hot iron ore market run? Signs are emerging that the market could be hitting its top. Chinese stockpiles have swelled as demand for the mineral cools, while Vale has announced its re-starting some of its forestalled mines, pointing to a slow return to normal market conditions.

Key levels to watch for iron ore:

Indicator

Support

Resistance

50-day EMA

200-day EMA

Daily RSI

Level

760

861

765

650

55

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