On Friday, we looked at what one leading broker was saying about Fortescue Ltd (ASX: FMG) shares. You can read about that here.
Unfortunately, it was feeling very bearish about the iron ore giant and was tipping its shares as a sell.
Let's now see what analysts at Bell Potter are saying about the miner.
What is it saying about Fortescue and its shares?
Firstly, let's take a look at what Bell Potter is saying about the mining giant's guidance for FY 2025.
It was disappointed with this guidance, noting that it has fallen short of expectations for both volumes and costs. The broker commented:
We identify a couple of factors in FY25 guidance that we believe have disappointed the market. First, guidance for iron ore shipments of 190-200Mt, at C1 cost of US$18.50 – US$19.75/wmt. Shipment guidance includes 5-9Mt from Iron Bridge (100 per cent basis). This compares with our prior forecast of 208Mt at C1 costs of US$18.30/wmt and represents a downgrade driven in part by a slower ramp-up at Iron Bridge and lower-than-expected hematite production.
Bell Potter also highlights that its capital expenditure guidance also disappointed the market. It adds:
We view the FY25 guidance as conservative, in light of the miss in FY24. Secondly, Energy division operating and capital expenditure has been maintained at US$700m and US$500m respectively. This is likely higher than market expectations given the recent re-structure. A significant US$700-US$900m has also been allocated to decarbonisation strategies for the iron ore division's US$3.2-US$3.8 billion total (up from US$2.9 billion in FY24).
Sell its shares
In light of the above, the broker has seen nothing to change its view that Fortescue shares are overvalued.
According to the note, Bell Potter has retained its sell rating and slashed its price target to $17.41 (from $20.63).
Based on the current Fortescue share price of $20.35, this implies potential downside of approximately 14% for investors.
This sell rating is based on its disappointing guidance and concerns over falling iron ore prices. It concludes:
EPS changes in this report are: FY24: -4%; FY25: -19% and FY26: -9%. Our NPV based valuation is lowered 16% to $17.41/sh. The weaker than expected guidance and higher CAPEX for FY25 combined with downside risks we see in the iron ore price outlook cause us to retain our Sell rating. Dividend yield as a price support remains a factor, but we expect this to fall away with a lower iron ore price.
