The Fortescue Metals Group Limited (ASX: FMG) share price has risen by 20% in just a month. So, could the Fortescue share price be a buy?
Fortescue was founded as an iron ore mining company. It’s now one of the biggest iron ore miners globally, alongside Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP).
It has multiple hubs and projects in Western Australia, including the Chichester Hub, the Solomon Hub, the Western Hub (which includes the Eliwana mine), its Hedland operations and the Iron Bridge project.
What happened to the Fortescue share price?
The last six months show a 45% rise in the Fortescue share price.
As a miner, Fortescue’s short-term profitability can be dictated by the movement of the iron ore price. Amid events in China and the Russian invasion of Ukraine, the iron ore price has risen to above US$150 per tonne.
Analysts at Ord Minnett and Macquarie expect the second half of FY22 to bring a bigger dividend than the first.
Fortescue has committed to a dividend payout ratio range of between 50% to 80% of full-year of net profit after tax (NPAT), As such, a rise in the commodity price can help cash payouts.
Ord Minnett now thinks that the iron ore price will be US$139 per tonne in 2022 and US$115 per tonne in 2023.
Green hydrogen deal in Europe
The broker noted the recent deal with E.ON in which a third of Fortescue Future Industries’ (FFI) targeted production capacity by 2030 will be supplied to E.ON.
Fortescue Future Industries and E.ON are partnering to deliver up to five million tonnes per annum of green, renewable hydrogen by 2030. They have signed a memorandum of understanding to execute this ambition.
FFI said that this partnership marks a “broader ambition to lead the decarbonisation of Europe and to strengthen security of green energy supply at a time when Europe needs to reduce its energy dependence on fossil fuels from Russia as quickly as possible.”
According to FFI, five million tonnes per annum (mtpa) of renewable green hydrogen is equal to approximately one-third of the calorific energy Germany imports from Russia.
FFI also said:
It is intended that such large amounts of renewable green hydrogen will be powered by Australia’s immense renewable resources as well as FFI’s other planned global projects, and will be distributed by E.ON. The parties have also agreed to work together to analyse what solutions could look like to solve infrastructure issues and to build a secure value chain.
Fortescue has a global portfolio of partnerships to explore green hydrogen production projects in various countries. They include Australia, Papua New Guinea, Canada, Jordan, New Zealand, India and Brazil.
Is the Fortescue share price an opportunity?
Broadly, brokers don’t think so. There are plenty of sell and hold (or equivalent) ratings.
For example, Morgan Stanley’s rating on the company is ‘underweight’. They have concerns about the valuation and how much FFI may spend on all of its initiatives. Morgan Stanley’s price target is $15.95.
One of the most recent ratings comes from Ord Minnett. The broker rates Fortescue as a hold with a price target of $20. The stronger-than-expected iron ore price is helping. Ord Minnett thinks Fortescue will pay a grossed-up dividend yield of 13.8% for FY22.
The post Up 20% in a month: Is the Fortescue share price a buy? appeared first on The Motley Fool Australia.
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More reading
- ASX 200 midday update: Magellan jumps, tech shares tumble
- Fortescue share price lifts amid $2b cap raise
- Iron ore just passed US$160 per tonne. So why is the Fortescue share price slipping?
- What’s the outlook for the Fortescue (ASX:FMG) share price in April?
- The Fortescue share price doubled the return of the ASX 200 in March
Motley Fool contributor Tristan Harrison owns Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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