Is the Fortescue Metals Group Limited (ASX: FMG) share price a buy after reporting its FY20 result?
Fortescue is a very large iron ore miner, it’s now one of the biggest businesses in Australia.
Fortescue’s impressive FY20 report
In FY20 Fortescue revealed that it grew revenue by 29% to US$12.8 billion.
This was achieved with record shipments – up 6% to 178.2 million tonnes and a 21% increase in the average realised price to US$79 per dry metric tonne (dmt). However, the amount of ore mined was down 1% to 204.3 million wet metric tonnes (wmt).
Fortescue’s underlying EBITDA (click here to learn what EBITDA means) improved by 38% to US$8.4 billion. The underlying EBITDA margin rose to 65% thanks to the higher prices and continued focus on cost management. C1 costs dropped 1% to US$12.94 per wmt.
Underlying net profit after tax (NPAT) improved by 49% to US$4.7 billion, which equates to a return on equity (ROE) margin of 40% according to Fortescue.
The company reported that it made US$6.4 billion of operating cashflow and free cashflow of US$4.4 billion.
Fortescue dividend
The Fortescue board declared a final dividend of $1 per share (up 19%), bringing the full year dividend to $1.76, up 54% on the prior year. That’s a dividend payout ratio of 77% of FY20 net profit.
Net debt at 30 June 2020 was US$258 million, down 88% from a year ago.
Management comments
Fortescue CEO Elizabeth Gaines said: “Once again, Fortescue’s unique differentiated culture underpinned the delivery of a year of outstanding performance for Fortescue, with record results achieved by the team across all our key operating and financial measures while sustaining our clear focus on investment for future growth and development.”
Outlook
In FY21 the company is expecting iron ore shipments of 175mt to 180mt, being around the same as last year. C1 costs are expected to rise to US$13 to US$13.50.
Capital expenditure is expected to be US$3 billion to US$3.4 billion, which includes US$1 billion of sustaining, operational and hub development capital. US$140 million of exploration expenditure and studies. Finally, there will be US$1.9 billion to US$2.3 billion for major projects – Eliwana, Iron Bridge and Energy.
This was another strong result by the iron ore miner. Using the pre-open Fortescue share price of $18, it offers a fully franked dividend yield of 10%. That’s a very large yield. So brave income investors may like to buy Fortescue, but who knows how long the good times will last? Brazil’s iron ore could come back to full production when COVID-19 stops being an issue, maybe Chinese demand will lower.
There are other ASX dividend shares with decent yields I’d rather buy first, not a miner at the top of the cycle.
