The Fortescue Metals Group Limited (ASX: FMG) share price is down around 20% over the last month. What do brokers make of the value that the miner offers investors?
How has the Fortescue share price been going recently?
It has been a volatile period over the last few months for the large iron ore miner. At the start of December 2020 it was priced at $18.23. A few weeks later it had climbed 42% to $25.92 on 7 January 2021.
However, it has steadily sunk 25% since then.
Why has the Fortescue share price been falling?
Like any commodity-based business, Fortescue's prospects are heavily linked to the movement of the iron ore price.
The iron ore price has been falling recently, it can't be expected to stay strong forever.
There have been concerns that there has been a call by Chinese authorities to reduce emissions in Tangshan which would involve a slow down of steel production.
However, the Fortescue share price is still a lot higher than recent years and so is the iron ore price. This was reported by Fortescue itself in its half-year result when it said that the realised price was up 42% year on year to US$114 per dry metric tonne.
There wasn't much change in the amount of iron ore sold by Fortescue – it went up 3% to 90.2 million tonnes.
The increase in the iron ore price led to Fortescue growing revenue by 44% to US$9.3 billion, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) growing by 57% to US$6.6 billion and net profit after tax (NPAT) rising by 66% to $4.08 billion.
A shift in focus for the company
Investors have also been taking in the news that Fortescue is going to be focusing on decarbonising its operations and pursuing green energy projects.
Fortescue has said it's going to leverage its successful track record of identifying, assessing and developing large-scale resource and infrastructure opportunities, It's going to bring its capabilities to adopting innovative technology to ensure Fortescue is at the forefront of this emerging industry.
Fortescue Future Industries (FFI) has been established, it's identifying renewable energy and green hydrogen projects both in Australia and globally.
The miner has committed to investing 10% of its net profit each year into renewable energy growth through FFI.
Broker thoughts on the Fortescue share price
There are varying thoughts on Fortescue. The broker Macquarie Group Ltd (ASX: MQG) has a price target of $25.50, which suggests potential upside of around 30%.
However, there's then Morgan Stanley which thinks the Tangshan issues will start to cause a decline for the iron ore price. As a miner with a lower grade of iron, Fortescue could be hurt more by this. Morgan Stanley's price target is $17.45.
In FY22, Morgan Stanley thinks that Fortescue could pay a dividend of $1.58 per share, amounting to a grossed-up dividend yield for next financial year of 11.6%.
However, Macquarie has a more positive outlook for the FY22 dividend and earnings. Macquarie believes the Fortescue share price is valued at 8x FY22's estimated earnings with a FY22 grossed-up dividend yield of 14%.
