Valuating & Financial Prediction of Fortescue Metals Group Ltd Essay Example
| Valuating & Financial Prediction of Fortescue Metals Group Ltd | AFX9540 BUSINESS FINANCE | | | |
Executive Summary
This report is written to offer a business analysis of Fortescue Metals Group Ltd (FMG) where there will be a discussion on the background of the company, its return on the pre-post announcement of raising funds, the capital structure during the global financial crisis in comparison to its peers and the estimation on the share valuation in comparison to the actual share value.
Fortescue Metals Group (ASX: FMG) is an Australian iron ore mining company. The company has holdings of more than 87,000 km² in the Pilbara region of Western Australia making it the largest tenement holder in the state. It is listed as FMG on the Australian Securities Exchange (ASX). In 2008, the group loaded its first iron ore shipment bound for China. Fortescue have at least 10 Chinese steel mill contracts lasting for around 10 years. Baosteel was the first company to receive their iron ore.
For the share valuation, the report uses the CAPM model to determine the prevailing cost of capital and also uses the dividend discount multistage model to predict the share price for the company. The components of the CAPM model (i.e. risk free rate, company beta, Market return and growth rate) are calculated and predicted on historical data. The valuation data is then compared with the actual market price of the shares for the corresponding years and a brief analysis is then performed on the economic and internal reasoning behind any variance encountered.
Table of Contents Executive Summary 2 1.0 Brief overview of the company 4 2.0 Capital Structure 4 2.1 Funds raised by the company 4 2.2 Usage of the fund 5 2.3 Announcement date for the issue 5 2.4 Share-return pre and post announcement 5 2.5 Market return same period 6 2.6 Market Perception 6 2.7 Effect of recent financial crisis 7 3.0 Valuation of FXJ shares 7
Executive Summary
This report is written to offer a business analysis of Fortescue Metals Group Ltd (FMG) where there will be a discussion on the background of the company, its return on the pre-post announcement of raising funds, the capital structure during the global financial crisis in comparison to its peers and the estimation on the share valuation in comparison to the actual share value.
Fortescue Metals Group (ASX: FMG) is an Australian iron ore mining company. The company has holdings of more than 87,000 km² in the Pilbara region of Western Australia making it the largest tenement holder in the state. It is listed as FMG on the Australian Securities Exchange (ASX). In 2008, the group loaded its first iron ore shipment bound for China. Fortescue have at least 10 Chinese steel mill contracts lasting for around 10 years. Baosteel was the first company to receive their iron ore.
For the share valuation, the report uses the CAPM model to determine the prevailing cost of capital and also uses the dividend discount multistage model to predict the share price for the company. The components of the CAPM model (i.e. risk free rate, company beta, Market return and growth rate) are calculated and predicted on historical data. The valuation data is then compared with the actual market price of the shares for the corresponding years and a brief analysis is then performed on the economic and internal reasoning behind any variance encountered.
Table of Contents Executive Summary 2 1.0 Brief overview of the company 4 2.0 Capital Structure 4 2.1 Funds raised by the company 4 2.2 Usage of the fund 5 2.3 Announcement date for the issue 5 2.4 Share-return pre and post announcement 5 2.5 Market return same period 6 2.6 Market Perception 6 2.7 Effect of recent financial crisis 7 3.0 Valuation of FXJ shares 7