##{"id":60022,"date":"2012-05-30T11:35:17","date_gmt":"2012-05-30T01:35:17","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/05\/30\/treasure-chest-fortescue-turning-into-a-yield-play\/"},"modified":"2012-05-30T11:35:17","modified_gmt":"2012-05-30T01:35:17","slug":"treasure-chest-fortescue-turning-into-a-yield-play","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/05\/30\/treasure-chest-fortescue-turning-into-a-yield-play\/","title":{"rendered":"Treasure Chest: Fortescue Turning Into A Yield Play?"},"content":{"rendered":"

\n\t– Research by Bell Potter finds Fortescue<\/span> can turn into a major dividend play in years ahead
\n\t– Line in the sand, finds Bell Potter, is an iron ore price of US$120\/t
\n\t– Macquarie also favoures<\/span> Fortescue<\/span> in the sector<\/strong><\/p>\n

\n\tBy Rudi Filapek-Vandyck<\/span><\/p>\n

\n\tAll the talk in Sydney yesterday was a report on Fortescue<\/span> ((FMG<\/span>)) issued by Bell Potter and highlighted by the stockbroker's institutional market commentator Charlie Aitken<\/span>. The shares put in a big performance on Tuesday (up 7%) though today's price action is far more subdued on Wednesday morning. So what kind of magic contains this Bell Potter report?<\/p>\n

\n\tIn essence, analysts Stuart Howe and Fred Truong<\/span> have done the hard yakka<\/span> and additional number crunching and come to the conclusion that an iron ore price of US$120\/tonne<\/span> should be considered the line in the sand for Fortescue<\/span>. Unless the price sinks below this price level for a long time, the future continues to look bright, is Bell Potter's message to the investment community. Needless to say, Bell Potter (being a long term supported of the company and the shares) thinks the price will remain above the line in the sand in years ahead.<\/p>\n

\n\tBell Potter's conclusion is supported by similar research done by the likes of Goldman Sachs and Citi<\/span>. Both released in-depth sector analysis earlier this month, but did not specifically zoom in on Fortescue<\/span> (which just goes to show: sometimes the market wants to be told and to be told again without having to think for itself).<\/p>\n

\n\tWhat makes the Bell Potter research unique though is the conclusion that if iron ore prices remain above US$120\/tonne<\/span>, and Fortescue<\/span> manages to pull off its targeted production expansion to 155Mtpa<\/span>, the shares are poised to become a yield play in the years ahead. Assuming the board increases the payout ratio to 50% (let's assume here that Bell Potter doesn't just pick this out of thin air) then shareholders should see their annual dividend yield rise to 5% in FY13<\/span> and to 14% in FY14<\/span>. Under a more bullish scenario, assuming iron ore prices rebound and average US$150\/t in FY13-14<\/span>, the projected yield could increase to 7% in FY13<\/span> and 20% in FY14<\/span>, states the report.<\/p>\n

\n\tNote that while the Bell Potter report received all attention on Tuesday, on Wednesday morning Macquarie issued an in-depth report on the sector concluding Fortescue<\/span> is its favourite<\/span> pick in Australia (this no doubt also contributed to the rise in share price yesterday).<\/p>\n

\n\tBell Potter did cut its price target on the shares to $7.40 from $8.75 previously, but that's still significantly above today's price of $4.86. Plus the stockbroker believes Fortescue<\/span> remains an attractive proposition for the likes of BHP<\/span> Billiton<\/span> ((BHP<\/span>)).<\/p>\n

\n\tFNArena's<\/span> consensus price target for the shares sits at $7.21, 48.3% above today's share price. Seven out of the eight major stockbrokerages monitored by FNArena<\/span> rate the stock as a Buy.<\/p>\n

\n\tLastly, and this is the key danger for the years ahead, were we to see sustained iron ore prices below US$120\/t, Fortescue<\/span> may require additional capital, says Bell Potter.<\/p>\n

\n\tTechnical limitations<\/strong><\/p>\n

\n\tIf you are reading this story through a third party distribution channel and you cannot see charts included<\/span>, we apologise<\/span><\/span>, but technical limitations are to blame.<\/em><\/strong><\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"