PhillipCapital analyst Vivian Ye has upgraded her recommendation on Fortress Minerals to “buy” as she sees growth in the demand for iron ore moving forward.
The price of iron ore is also expected to remain resilient with higher infrastructure spending from the Chinese government and slower-than-expected supply growth from Australia and Brazil, notes the analyst in her May 3 report.
“We expect prices to trend around US$150/DMT,” she adds.
In addition to her recommendation upgrade, Ye has also increased her target price estimate to 66 cents from 50 cents.
She has also upped her patmi estimates for the FY2023 as she increases her production forecast by 9.5% to 498,032 dry metric tonnes (DMT).
Ye’s new target price is still pegged to the industry average, which is an FY2023 P/E of 11x, up from 10x.
See also: Fortress Minerals reports slightly weaker FY22 results, full-year DPS of 0.8 cents
Despite the upgrade, Fortress’ results for the 4QFY2022 ended February, with revenue and patmi coming in at 12% and 6% of Ye’s full-year forecasts.
During the quarter, Fortress reported revenue of US$5.2 million ($7.2 million), down 69.8% y-o-y. Patmi, too, fell by 82.3% y-o-y to US$1.1 million.
The quarter’s sales volume fell by 72.2% y-o-y on the back of lower operating capacity due to the Omicron variant among workers. Unfavourable weather conditions also contributed to the decline in sales volume.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
In her report, Ye noted Fortress’ stronger cash flows, which surged 113% y-o-y to US$15.1 million as at end-February.
However, the lower sales volume and the higher net debt compared to net cash, were concerns. The higher net debt was due to new bank borrowings of US$23.3 million, which were used to finance the acquisition of Fortress Mengapur and the lower profit after tax recorded in the FY2022.
Shares in Fortress closed 0.5 cent lower or 1.12% down at 44 cents or an FY2023 P/E of 7.4x and dividend yield of 2.7%.
