Fortescue Metals Group Ltd ASX Code: FMG Price: $4.59 12 ... · Profit & Loss ($M) 2013A 2014A 2015A 2016A 2017A Sales Revenue 8,755 12,477 11,164 9,538 10,982 Total Revenue ex. Int.

Business SummaryFortescue Metals Group Ltd (FMG) is an iron ore production and explorationcompany with assets located in the Pilbara region of Western Australia.

Chichester Hub: Fortescue's Chichester Hub is located in the ChichesterRanges in the Pilbara region of Western Australia, 263km south of PortHedland and 150km north of Newman. It comprises of Cloudbreak mine andChristmas Creek mine. The total JORC resources stands at 3,[email protected]%Fe which includes a Measured resource of 1,048Mt @ 56.9% Fe, Indicatedresource of 1,492Mt @56.0% Fe and Inferred Resource of 619Mt @55.7%Fe. The total resource for Cloudbreak mine and Christmas Creek minestands at 1,090Mt @56.5% Fe and 2,069Mt @ 56.1% Fe.

Solomon Hub: Solomon Hub is located 120km west of the Chichester Hub. Itcomprises the Firetail mine and the Kings mine. The total JORC resourcesstands at 2,[email protected]% Fe which includes a Measured resource of 254Mt@ 55.5% Fe, Indicated resource of 876Mt @56.2% Fe and Inferred Resourceof 968Mt @55.8% Fe.

Development Properties: The properties include Chichester Other Hub(491Mt Resource), Solomon Other Hub (2,658Mt Resource), Eliwana andFlying Fish (740Mt Resource), and Nyidinghu (2,463Mt Resource). Theseproperties lead to Total hematite Goethite Mineral Resource of 6,353 Mt @57.4% Fe and Magnetite of 6,706 Mt @ 24.1% Fe.

Latest ResearchStill making good money

FMG announced its 1HFY18 financial results, which were either in-line withor ahead of our estimates, and consensus. The key difference was on thePBT line, where higher-than-forecast finance expenses resulted in a minormiss on that and our NPAT

number. FMG’s key metrics were revenues of US$3,679m (vs BPeUS$3,617m), EBITDA of US$1,828m (vs BPe US$1,770m) and NPAT ofUS$681m (vs BPe US$718m). An interim dividend of A11cps (fullyfranked) was declared (vs BPe A12cps), equating to a payout ratio of 39%.This is below the full-year payout ratio guidance of 50-80% of NPAT butremains consistent with previous splits between interim and final. OurFY18 total dividend forecast is lowered slightly to A32cps,

implying a fully-franked yield of 6%. As at 31 Dec 17 FMG held cash ofUS$892m and gross debt of US$4,181m for net debt of US$3,289m, fromUS$3,996m (pcp). FY18 guidance remains unchanged at 170Mt oreshipped at C1 costs of US$11-12/wmt.

For more information see research 22 Feb 2018.

GICS - Materials

Fortescue Metals Group Ltd

ASX Code: FMG Price: $4.59 12 Mth Target Price: $6.30 Rating: Buy

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Snapshot

DateMarket Cap.Shares on issue12 Month High12 Month Low

6 July 2018$14,292m3,113.8m$6.07$4.17

RatingRating12 Mth Target Price

Capital GainGross Yield

Implied Total Return

Buy$6.3045.8%18.5%64.3%

Investment FundamentalsFYE 30 Jun 2017A 2018F 2019F 2020F

Profit $m 2,775.5 1,820.2 2,745.9 2,217.8Profit (norm)* $m 2,775.5 1,820.2 2,745.9 2,217.8

EPS* ¢ 88.9 58.5 88.2 71.2EPS Growth % 105.0 -34.2 50.8 -19.2P/E* x 4.9 7.4 4.9 6.1P/E Relative % 0.0 0.0 0.0 0.0

DPS ¢ 59.7 41.0 55.8 46.4Yield % 13.8 9.5 12.9 10.7Franking % 100.0 100.0 100.0 100.0* Adjusted for goodwill and unusual itemsSource: Based on Bell Potter estimates

Share Price Chart

Total Return on $10,000 Investment

Profit & Loss ($M)2013A 2014A 2015A 2016A 2017A

Sales Revenue 8,755 12,477 11,164 9,538 10,982Total Revenue ex. Int. 9,068 12,610 11,264 9,806 11,000EBITDA 3,532 5,943 3,195 4,378 6,101Depreciation & Amort. -499 -1,024 -1,829 -1,675 -1,616Goodwill Amortisation -- -- -- -- --EBIT 3,033 4,918 1,366 2,703 4,485Net Interest -596 -764 -819 -879 -628Profit Before Tax 2,437 4,154 547 1,823 3,857Income Tax -776 -1,245 -135 -497 -1,136Outside Equity Int. -- -11 1 -1 --Profit after Tax 1,660 2,898 413 1,325 2,721Significant Items after Tax 222 -- -- -- --Reported Profit after Tax 1,882 2,898 413 1,325 2,721Preferred Dividends -- -- -- -- --

Cash Flow ($M)2013A 2014A 2015A 2016A 2017A

Receipts from Customers 9,407 13,395 11,116 9,013 11,399Funds from Operations 3,988 6,792 3,341 3,982 6,531Net Operating Cashflow 3,239 6,633 2,652 4,071 5,533Capex -6,852 -2,118 -1,105 -485 -948Acquisitions & Investments -- -- -- -- --Sale of Invest. & Subsid. -- 170 132 -- --Net Investing Cashflow -6,648 -1,478 -945 -452 -930Proceeds from Issues -- -- -- -- --Dividends Paid -141 -617 -447 -154 -982Net Financing Cashflow 3,223 -4,910 -1,608 -4,662 -4,267Net Increase Cash -187 245 99 -1,044 337Cash at Beginning 2,526 2,291 3,122 3,206 2,058Exchange Rate Adjust. -13 10 -121 -31 -5Cash at End 2,327 2,546 3,100 2,132 2,389

Ratios and Substantial Shareholders2013A 2014A 2015A 2016A 2017A

Profitability RatiosEBITDA Margin % 40.34 47.63 28.62 45.90 55.56EBIT Margin % 34.64 39.42 12.23 28.34 40.84Net Profit Margin % 18.97 23.23 3.70 13.89 24.78Return on Equity % 29.14 36.07 4.21 11.73 21.53Return on Assets % 9.35 14.32 3.60 7.54 12.80

Debt/Safety RatiosNet Debt/Equity % 199.15 94.41 95.37 61.72 27.05Interest Cover x 5.09 6.43 1.67 3.07 7.14

Top 5 Substantial ShareholdersMinderoo Group Pty Ltd 33.4%Hunan Valin Group 14.0%

Balance Sheet ($M)2013A 2014A 2015A 2016A 2017A

Cash & Equivalent 2,327 2,546 3,100 2,132 2,389Receivables 441 621 379 325 183Inventories 1,036 1,557 1,007 746 764Other Current Assets 144 29 109 61 49Current Assets 3,948 4,753 4,595 3,263 3,387Prop. Plant & Equipment 18,216 18,747 22,085 21,674 20,385Intangibles 43 71 57 20 9Other Non-Current Assets 151 34 117 66 53Non-Current Assets 18,550 19,339 23,217 22,777 21,464Total Assets 22,498 24,091 27,812 26,040 24,850Interest Bearing Debt 13,683 10,145 12,460 9,118 5,813Other Liabilities 3,113 5,896 5,539 5,602 6,383Total Liabilities 16,796 16,041 17,999 14,720 12,196Net Assets 5,702 8,050 9,814 11,320 12,655Share Capital 1,392 1,368 1,685 1,752 1,676Reserves -53 73 60 44 51Retained Earnings 4,359 6,593 8,052 9,504 10,910Outside Equity Int. 4 15 17 19 18Total Shareholders Equity 5,702 8,050 9,814 11,320 12,655

Current Analyst Recommendations *

* Source: Morningstar. This chart shows the spread of recommendations from thosebroker analyst's in Australia with research coverage of this stock.

Principals & DirectorsPrincipals

Company Secretary Ms Alison TerryMr Cameron Wilson

Directors

Mr John (Andrew) Henry Forrest(Non-ExecutiveChairman,Non-Executive Director)Ms Penelope (Penny) Bingham-Hall(Non-Executive Director)Lord Sebastian Coe(Non-Executive Director)Mr Mark Bradley Barnaba(Non-Executive Director,Lead IndependentDirector,Non-Executive Deputy Chairman)Ms Elizabeth Anne Gains(Executive Director,Chief Executive Officer)Ms Sharon Lee Warburton(Non-Executive Director,Non-ExecutiveDeputy Chairman)Dr Jean Baderschneider(Non-Executive Director)Ms Jennifer Morris(Non-Executive Director)Mr Zhiqiang Cao(Non-Executive Director)

To access further Research or for information regarding our recommendations and ratings please seewww.bellpotter.com.au

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Fortescue Metals Group Ltd

Bell Potter Securities Research

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