The Fortescue Metals Group Ltd (ASX: FMG) share price has gone up by 13% in February 2021. Could it be time to buy the shares?
About the miner
Fortescue is one of the biggest iron ore miners in Australia. It's actually one of the biggest in the world, the only ones bigger are the big two Australian miners BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO), as well as Vale in Brazil.
It is based in Western Australian and has large scale infrastructure and mining assets in the Pilbara, Western Australia. It was established by the Fortescue Chair, Dr Andrew Forrest in 2003.
It has operations like the Chichester and Solomon mining hubs. It is also developing the Western Hub, which is home to the new Eliwana mine. It also claims that the Iron Bridge Magnetite Project will be one of the highest-grade magnetite projects in the world.
Whilst the company has major existing iron ore operations, it also has numerous activities underway for more growth. It has exploration activities ongoing in New South Wales and South Australia, as well as in Ecuador and Argentina. It also has preliminary exploration activities on tenements that are in application in Colombia, Peru, Portugal and Kazakhstan, prospective for copper, gold and lithium.
What's driving the Fortescue share price?
The company suffered a declined of 14% at the end of January 2021 and it has been recovering ever since then.
Last week the company announced its FY21 half-year result.
There was a high level of growth. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 57% to US$6.6 million, with the EBITDA margin rising to 71%.
This drove the net profit after tax (NPAT) up by 66% to US$4.1 billion. Earnings per share (EPS) also grew by 66%, to US$1.33 per share. In Australian dollar terms that was A$1.84 per share.
The cashflow statistics also showed growth. Cashflow from operating activities went up by 42% to US$4.4 billion and free cashflow improved by 12% to US$2.52 billion.
The strength of the profit growth allowed management to grow the interim dividend by 93% to AU$1.47 per share. It also meant the net debt could be reduced by 57% to US$110 million.
After shipping 90.7 million tonnes of ore in the first half, Fortescue is expecting to ship between 178 Mt to 182 Mt for the full FY21. The C1 cost is expected to be between US$13.50 per wet metric tonne (wmt) to US$14 per wmt.
Broker opinion on the Fortescue share price
The brokers at Macquarie Group Ltd (ASX: MQG) recently had a look at each of the large iron ore miners. It has been impressed by the level of dividends and there is still potential earnings growth because of the strong iron ore price.
Whilst the FY21 first half-half profit result was what Macquarie was expecting, the dividend was higher than expected by around 7%.
Macquarie thinks that Fortescue can continue to generate good returns and it's the broker's favourite large cap ASX miner to buy.
The broker thinks that Fortescue is valued at 7x FY21's estimated earnings and has projected it's going to pay a grossed-up dividend yield of 16.2% this year.
Macquarie has a share price target of $26.50 for Fortescue.
