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FMG in income portfolio

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Question asked 12/07/2024

FMG in income portfolio

Hi MM, Firstly, I appreciate you responding to Q&A submitted questions. This is appreciated. My first question - do you view FMG as a longer term income stock? With Simandou possibly online next year (at low volumes but ramping up quickly through to 2027, and then further expansion 2027-2030) and forecast oversupply in 2025, iron ore prices will likely drop. The dividend income is great but if the stock share price tanks in the next few years due to iron ore oversupply, the capital loss will override the dividend income. How do you view this possible scenario playing out with FMG? I'm not sure or enthusiastic about FMG's green hydrogen strategy which is soaking up plenty of cash. Regards, Peter

Answer

Hi Peter,

The points you raise are extremely valid but we feel on balance Fortescue (FMG) represents good value over the coming few years between $21 and $22 hence our recent purchase for our Active Income Portfolio although note our conservative 4% position size.

The real gorilla in the room for iron ore and FMG is Chinas languishing property market, if Beijing can engineer some semblance of a pick up in activity then the bulk commodity is likely to follow suit:

In February when optimism was high that Chinese property was on the turn FMG was ~35% higher. There is plenty of bad news built into today’s prices, including the uptick in new supply, which is well understood and known by the market, hence is already captured in the price.

We believe Beijing through its targeted stimulus will support Chinese property which will flow into FMG. Like you we are adding no value to the stock for its new green energy hydrogen strategy at this stage.

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Fortescue Ltd (FMG)

LAST UPDATED 12/07/2024 13:27

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