Fortescue shares: Here are the must-know highlights from FY24

The financial year just past had its ups and downs for shareholders.

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To say that Fortescue Ltd (ASX: FMG) shares had a turbulent ride in FY24 would be an understatement. Ultimately, Fortescue shares fell 3.47% across the financial year just past.

The stock whipsawed from lows of $19.40 per share in September last year to highs of $29.88 by the end of January. With a large consolidation in the iron ore price, the mining giant's shares are now fetching $22.62 apiece.

In other words, shareholders watched their Fortescue stock move a total of $17.74 per share in that time, including both up and down moves.

The mining stock is now valued at a price-to-earnings ratio (P/E) ratio of 7.7 times, with a trailing dividend yield of 9.64%.

Let's dive into the key highlights from FY24 that you need to know.

Strong first half for Fortescue shares

A strong iron ore price kept Fortescue shares buoyant in the first half of the financial year.

Currently, iron ore is priced at US$113 per tonne. This is after it peaked at US$144 per tonne in January, finishing an 8% rally starting in August 2023.

This strength inflected positively on Fortescue's H1 FY24 results. It clipped a 24% rise in the average revenue per dry metric tonne (dmt) of iron ore sold.

This translated to a 21% increase in revenue to US$9.5 billion, while net profit after tax (NPAT) surged by 41%.

That means that for every new $1 in revenues, Fortescue produced $1.95 in NPAT, which is quite the result.

Consequently, free cash flow increased by 68% year over year to US$2.66 billion, while net debt was reduced by almost half.

The company also rewarded shareholders with a 44% increase in the interim dividend, which is now at A$1.08 per share.

As a result, Fortescue shares were a winner in the first half of FY24. They saw a roughly 33% rise in that period.

But the second half, though? Almost a complete reversal.

Challenges arose from Q3

Despite the strong first half, Fortescue faced some hurdles in Q3 FY24. Not least, the pricing of iron ore weakened significantly and hit a low of around US$100 per ton in April.

Unsurprisingly, the company reported an average revenue per dmt of US$104 per tonne, down almost 4% from its first-half results.

Fortescue reported that iron ore shipments for the three months ended 31 March were 43.3 million tonnes (Mt), down 6% from the previous year. It was also below consensus estimates.

Some of the shortfall was attributed to an ore car derailment and some to weather disruptions. Thankfully, a record shipment month in March helped mitigate the impact. The stock consequently finished the financial year roughly in line with where it started.

Future prospects and iron ore prices

Fortescue shares are highly sensitive to iron ore prices. Looking ahead, the iron ore market remains volatile.

UBS forecasts an average iron ore price of US$113 per tonne for the rest of 2024 – flat with today's price.

But predicting future iron ore prices is challenging, given commodity markets' cyclical and unpredictable nature.

While Trading Economics forecasts a potential rebound to US$126 per tonne in the next 12 months, much will depend on economic conditions in China, a major consumer of iron ore.

According to my colleague Tristan, the recent economic data from China has shown a decline in house prices and reduced industrial demand, which could impact future prices.

Goldman Sachs sees further risks for Fortescue shares in FY25. In a July note, the broker reiterated its sell rating on Fortescue, stating that its upcoming guidance "will disappoint."

It said:

We maintain Sell rating on: (1) Relative valuation vs. BHP & RIO, (2) Widening of low grade 58% Fe product realisations over the medium to long term, (3) Execution and ramp-up risks on Iron Bridge and Gabon, (4) Uncertainties around Fortescue Energy diversification (such as the recent approval of the Phoenix hydrogen hub) and Pilbara decarbonisation and impact on dividend and balance sheet.

The stock is also rated a sell by consensus, according to CommSec. No brokers rate it a buy.

Fortescue shares' FY24 wrap

Fortescue shares were volatile in FY24, but that's the risk of owning an ASX mining stock. They are price takers on the commodities they sell – not price setters. Fluctuations in the price of iron ore are likely to strongly influence Fortescue shares.

This year to date, Fortescue is down 22%, having slid 7% into the red in the past month.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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