FMG share price: where next following record interim results?

Fortescue Metals Group (ASX: FMG) today released a set of interim results that touted stronger revenue, profits and lower costs.

Not only that, but as many were predicting, FMG also announced a hefty Interim Dividend of 76 cents per share – representing a 65% payout ratio – and coming in line with the company’s shareholder friendly policy of paying out 50% to 80% of earnings (NPAT).

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Commenting on these results, Fortescue’s Chief Executive Officer, Elizabeth Gaines said:

‘We are continuing to generate strong margins, delivered by our industry leading cost position and production strategy.’

'Our integrated mine to market infrastructure is delivering sustained operational efficiencies across the business and both of our significant growth projects, Eliwana and Iron Bridge, are progressing on schedule and budget,’ Elizabeth Gaines further said.

FMG share price: fundamentals in focus

Though FMG’s latest Quarterly Production Report already pointed to a strong set of interim results – where the company reported record first-half shipments of 88.6 million tonnes – today’s release decisively reinforced these already positive expectations.

In step with that, within the first 30-minutes of trade the FMG share price was bid some 2.26% higher – to $11.31 per share.

On the top-line, FMG reported H1 sales revenue of US$6,485 million (+83% YoY) against earnings (underlying EBITDA) of US$4,228 million. Management attributed this boost in EBITDA to the company's 'focus on productivity, efficiency and innovation' as well as 'the improved Platts index'.

On the bottom-line, FMG reported even stronger profits, recording a 280% increase in net profits after tax (NPAT) on a YoY basis.

C1 costs came in at US$12.73 per wet metric tonne during the half.

In addition to this, FMG’s cashflow stood out during the half, with the company reporting H1 free cash flow (FCF) of US$2,262 million. In H1 FY19, the company recorded FCF of US$417 million.

Indeed, FMG’s cash generative abilities are one of the key reasons that Macquarie favours the stock, with the investment bank recently saying 'FMG remains our preferred pure play iron-ore stock, trading on free cash flow yields of 15-20% at spot prices.'

Prior to today’s results release, Macquarie had an Outperform rating and a $12.80 price target on Fortescue.

Where next: FY20 outlook in focus

Finally, even amid Coronavirus concerns, FMG has today reiterated its previously upgraded FY20 guidance.

Here, the pure-play miner expects full-year iron ore shipments at the upper-end of the 170 to 175 million tonne range, C1 costs to hover around the US$12.75 to US$13.25 (per wet metric tonne) mark and capital expenditure to come in at US$2.4 billion.

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