MENU

Fortescue Metals Group Limited: Then and Now

What a difference time can make in the share market. 2 years and 2 weeks ago, Fortescue Metals Group Limited (ASX: FMG) rolled the dice and raised $2.3 billion in bonds with an interest rate of 9.75% per annum.

It was a desperate move, designed to give the company breathing room by refinancing its near term debt. Creditors wanted a high rate of interest to compensate them for lending to the company, which was perceived to be in dire financial straits. Fortescue had $9 billion in debt on its balance sheet at the time, more than its total market capitalisation:

source: Company presentation

Now, the picture looks a little different:

source: Fortescue Metals Group

Things could so easily have gone the other way for Fortescue, but they didn’t. Higher iron ore prices turned the company’s fortunes around, and it paid off a stack of debt. This morning, Fortescue raised $1.5 billion in a bond offer that was heavily oversubscribed, paying an interest rate of just ~5% per annum and pushing the company’s nearest debt repayment date out to 2022. Total debt has dropped from $9 billion to $3.6 billion in the past 2 years, and shares have enjoyed a corresponding turnaround:

Up more than 100% from when the 9.75% bonds were first raised.  (source: Google Finance)

The real question is, is Fortescue still an opportunity today? It looks conventionally cheap, with the company reporting US$1.2 billion (A$1.6 billion) in profit in the first half, pricing shares today at about 6 times earnings, if we doubled the first half to approximate the full year. BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) both look more expensive on this basis.

However, Fortescue’s future profits are dependent on the price of iron ore, which is uncertain. Still, for investors looking at the sector, Fortescue’s now a low debt iron ore miner with the lowest cost of production in the world. It could be worth a closer look.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.