Fortescue Earnings: Profit Declines on Lower Iron Ore Prices

No-moat Fortescue’s fiscal 2023 result broadly met our expectations. Adjusted net profit after tax of USD 5.5 billion, or USD 1.79 (AUD 2.77) per share, was down around 10% on last year but similar to our estimate. Adjusted EBITDA fell 6% to roughly USD 10 billion, driven by 5% lower realized iron ore prices to USD 95 per metric ton. Modestly higher sales volumes and lower shipping costs offset a 10% increase in unit cash costs due to inflation to about USD 18 per metric ton. Fortescue will pay an AUD 1.00 final dividend in September for a fiscal 2023 total of AUD 1.75 per share fully franked. This was 6% below our estimate but met the middle of Fortescue’s 50%-80% target payout ratio. Free cash flow of USD 4.3 billion rose 19% on last year and the balance sheet is very strong, with minimal net debt of USD 1 billion, or 0.1 times trailing 12 months EBITDA.