Fortescue Metals Group FY 22 Earnings: what to expect?

[MongiIG]

Fortescue Metals Group demonstrated its exceptional capability to stand the test of fast-changing market environment. However, major concern is all these industry-wide headwinds are going to stay and elevate in the coming years.

Source: Bloomberg

 

Fortescue Metals Group Indices Shares Dividend Iron ore Mining

Hebe Chen | Market Analyst, Melbourne | Publication date: Friday 26 August 2022 

Fortescue Metals Group Earnings date

Fortescue Metals Group Limited (ASX: FMG) will announce its annual report for FY22 on Monday, 29 August 2022.

Fortescue Metals Group FY22 Earnings Expectation

Fortescue Metals reported its June quarter’s production on July 28th. For the final quarter, Fortescue delivered a record iron ore shipment of 49.5mt. This means that shipments for FY22 have now reached 189mt, exceeding full year guidance of 188mt.

Average revenue of US$100/dmt in FY22, a 25% lower than FY21 at $135/dmt. Average revenue realisation is also down from 88% in FY21 to 78% in FY22.

The mining company is expected to deliver earnings per share at $2.911, 34% decline from FY21.

Fortescue Metals Group FY22 Key Watch:

Throughout the financial year, Fortescue metals Group has gone through the complicated operating challenges compounded with COVID-19 restrictions in the first half, the industry-wide headwinds and the turbulent global markets.

Although the yearly production performance exceeded the top-line guidance, which, demonstrating the company’s exceptional capability to stand the test during the fast-changing market environment, the heightened concern is that all these headwinds are going to stay and elevate in the coming years.

Cost

Even though the mining business has been proud of its industry-leading cost position, its C1 cost has climbed up 14% from the previous year, from US$13.93 to US $15.91. This was due to the rising diesel costs, labor rates and other consumables. Based on the Q4 result, the C1 cost is anticipated to keep moving up to US$18.00 – US$18.75/wmt for the next 12 months.

Global Demand

The second and most worrying headwind is the demand. The deteriorated demand outlook on iron ore has been repeatedly highlighted by other industry giants like BHP and Rio Tinto. In BHP’s recent annual report, the world’s largest miner warned that “In the medium term, (the major importer) China’s demand for iron ore is expected to be lower than it is today as crude steel production plateaus, and the scrap-to-steel ratio rises. ”

In fact, not only the demand from China looks dim. Many countries worldwide are on the way or already in the throes of a slowing-down economy, including the heavy-weighted nations like US, UK and Europe, which would inevitably lead to a shrinking demand for industrial commodities.

FY23 outlook

Looking ahead, Fortescue has revealed its FY23 guidance to the market. In the new financial year, the company is expected to keep improving its iron ore shipments, but with a mild pace: yearly shipment is looking at the range from 187 to 192mt, representing a merely 1.5% increase from the past financial year.

Dividend

Fortescue is well known as one of the most generous dividend payers on the ASX. The ASX mining share’s policy is to have a dividend payout ratio between 50% and 80% of full-year net profit after tax (NPAT).

In the FY22 half-year, FMG paid a fully-franked interim dividend of 86 cents per share. That represented a dividend payout ratio of 70% of the FY22 half-year net profit. For the previous financial year, FMG returned to its shareholder with $3.58 per share, representing an enviable dividend yield of more than 16%.

Fortescue Metals Group Share price and Technical Analysis:

Since entering 2022, the FMG’s share price has been struggling to stay above the psychological $20 barrier. In July, Fortescue shares once tumbled to a year-to-date low of $16.24 before ticking up a notch. Currently, Fortescue has a relatively low price-to-earnings (P/E) ratio of 4.49 compared to BHP at 7.18x and RIO at 5.4x.

Based on the daily chart, the price encountered a massive hurdle from the previous price gap between $18.9 and $19.5. Only a breakthrough from this gap could unlock the opportunity to retest the 61.8% Fibonacci retracement and move towards the $20 level. On the flip side, the 20-day moving average can be considered as the imminent support if the price retreats.