The Fortescue Metals Group Limited (ASX: FMG) share price dropped 0.8% yesterday after reporting its FY23 half-year result.
With such a muted response, it seems the result wasn't much of a surprise. We had already seen some of the numbers with the miner's quarterly update for the three months to 31 December 2022.
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Earnings recap
Let's remind ourselves about the half-year highlights.
There was a slight reduction in revenue; it dropped 4% to US$7.8 billion. Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) dropped 9% to US$4.35 billion, with an EBITDA margin of 56% (down from 59%).
Net profit after tax (NPAT) fell by 15% to US$2.37 billion, which led to the interim dividend being cut by 13%, though the dividend payout ratio was also reduced to 65% (down from 70%).
Fortescue's total debt was almost unchanged, but the net debt increased by $1.2 billion after a decrease in the cash balance.
The ASX 200 miner also noted a number of areas of progress for Fortescue Future Industries (FFI), including advancing the Holmaneset project in Norway, which could unlock a 300MW green hydrogen and green ammonia facility and support infrastructure.
What to make of this result?
Yesterday, The Australian reported on comments by Moody's Investors Service analyst David Xu, who said:
Although lower than the prior year, earnings were still solid, underpinned by good operational performance and elevated realized iron ore prices.
Similar to industry peers, Fortescue's operating costs have risen on inflationary pressures. However, Fortescue's cost position remains low for the sector, providing a good buffer against further downside risk to iron ore prices.
Although net debt increased, Fortescue's balance sheet remains solid with good liquidity and low financial leverage, providing the company with capacity to fund its upcoming capital expenditure.
While not exactly a ringing endorsement, it seems like the result was solid enough for the Fortescue share price to hang onto its gains from the last few months.
Is the Fortescue share price a buy?
The business has benefited from the higher iron ore price thanks to optimism about China's reopening after COVID-19 lockdowns.
Time will tell whether the iron ore price can help drive Fortescue shares higher, or lower.
But, with the things that the business can control, it's doing well. In the FY23 first half, the amount of iron ore shipped increased by 4% to 96.9 mt.
I'm particularly excited by the company's potential with its green energy and green products.
The company noted that Fortescue Future Industries (FFI) achieved a "significant breakthrough" in the pursuit of green iron ore by successfully processing 150kg of iron ore to make metallic iron that could pave the way for the production of green iron at scale.
It has also entered an agreement with Baker Hughes to jointly explore opportunities for the scale-up and adoption of technology solutions for green hydrogen, green ammonia, and geothermal products. The company has also made an investment in Fabrum, a company that's developing "world-leading" applications for hard-to-abate sectors like mining, heavy transport, and aviation.
While I wouldn't say that Fortescue is fantastic value, nor do I think the Fortescue share price would be the best choice today, I still think the future is positive for the company.
