Iron ore giant Fortescue Metals Group [ASX:FMG] posted that iron ore shipments of 96.9 million tonnes were 4% higher than the prior period, and it received NPAT of US$2.4 billion, 15% lower than the previous year.
As a result, Fortescue delivered a fully franked interim dividend of 75 cents per share, a 65% payout of H1 FY23 profit, less than the 86 cents interim dividend the year before and at a lower payout ratio to earnings.
Fortescue’s share price dropped slightly below its last trading price, trading at $22.15 a share by early afternoon.
Source: TradingView
Fortescue Metals provides half-year report, profits and dividends dip
For the half year ending 31 December 2022, Fortescue Metals reported a ‘record half year’ of production, with iron ore shipments totalling 96.9 million tonnes, 4% higher than the same time last year.
However, the group reported that its net profit after tax (NPAT) had come to US$2.4 billion, down 15% on last year.
Fortescue churned an underlying EBITDA of US$4.4 billion in the first half of fiscal 2023 and an underlying EBITDA margin of 56%.
Since the group had earned less than it did the previous year, the board dished out a fully franked interim dividend of 75 cents a share, repressing a 65% payout to it first half’s NPAT.
Last year, the interim dividends were at value of 86 cents each, again lower in its correlation to earnings by 5 cents.
FMG’s consistency in delivering at the higher end of its promised dividend-as-a-percentage-of-earnings range (between 50% and 80%) has faltered, following a two-year track record wherein FMG delivered dividends at around 75–80% of earnings.
Capital expenditure in the half year totalled US$1.4 billion, including US$596 million of sustaining and development capital, US$110 million in exploration and studies, US$624 million in major projects, and US$51 million incurred by growth in Fortescue Future Industries.
What does this mean for FMG’s immediate future?
While dividend growth has been cut as a casualty of lower profit, the iron ore giant did say that it’s not changing its FY23 shipments or capital expenditure guidance.
This is an interesting choice, as the iron ore producer seeks to upscale its growth in the energy market across its existing major projects, Iron Bridge Magnetite Project and its Fortescue Future Industries (FFI) subsidiary.
FMG shared a balance sheet of US$4 billion in December 2022, structured around low-cost invest-grade terms, which it declares is balanced with some built-in flexibility for supporting ongoing operations and future growth.
For the rest of FY23, the group expects to ship 187–192 million tonnes of iron ore, at a C1 hematite cost of US$18.00–18.75 per wet metric tonne.
FFI’s FY23 anticipated expenditure is looking at around US$500–$600 million of operating expenditure and US$230 million of capital expenditure.
Market analyst UBS predicts FMG’s earnings and dividends will sink lower over the next five years, while Macquarie expects to see growth expenditure rise from around US$3.3 billion to US$3.9 billion to 2028.
Whether or not would-be shareholder returns are further redirected into growth funding is something we may yet see.
Australia’s next commodity boom
Speaking of FMG, our resources expert thinks the Australian resources sector is set to enter a new commodities boom — one that may just mirror the potential FMG offered to investors when it struck gold — well, iron — the las time around.
This is a boom that is likely to be brought on by the ‘Age of Scarcity’.
James Cooper, trained geologist turned commodities expert, is convinced ‘the gears are in motion for another multiyear boom in commodities’…and the best part is that Australia and its stocks are in prime position to reap great benefits.
You can access a recent report by James on exactly that topic AND access an exclusive video on his personalised ‘attack plan’ right here.
If that isn’t enough to sate your curiosity, check out this interview with James and Greg with Ausbiz.
Regards,
Mahlia Stewart
For The Daily Reckoning Australia