Analysts say Fortescue Metals Group's move to sell part of its port and rail assets could trigger a major re-rating in the miner's stocks.
In an investor note this morning Foster Stockbroking said commodity stocks had been boosted recently on the back of positive data from Asia, and FMG could soon reap the benefits of a turnaround.
“With China’s leadership so far proving stable, positive CPI data a potential trigger for the prospect of Chinese intervention to start stimulating the economy again and iron prices now stabilising, we believe attention will return to the aussie iron ore producers and view FMG as the best trading stock for a recovery in the sector with the stock up 11 per cent this week,” it said.
Foster Stockbroking said FMG's move to sell up to 40 per cent of its rail and port infrastructure was good news for investors, and could be a “catalyst for a major re-rating”.
It said the sale would move the company from a “high risk highly geared” position into an “investment grade credit rating,” with further cost cutting also reducing its risk.
“While the shift away from being the sole proponent of The Pilbara Infrastructure is expected to marginally increase operating costs the potential for an investment grade credit rating would significantly lower the interest costs of the $US5 billion secured facility in place,” it said.
The analysis comes on the back of BHP's confidence that the iron ore sector will still be a major source of profitability over the next few years.
Speaking at the Bloomberg Australian Economic Summit yesterday, BHP CFO Graham Kerr said the company could still operate well with lower commodity prices.
“Even if prices come down in iron ore in the next four of five years it will still be a hugely profitable business for us,” he said.