It has been a difficult few months for the Fortescue Metals Group Limited (ASX: FMG) share price.
Since peaking at a record high of $26.58 in July, the mining giant's shares have lost 46% of their value and are now trading at $14.33.
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Is the Fortescue share price good value now?
While opinion remains divided on the Fortescue share price, one leading broker that appears to see it as dirt cheap is Bell Potter.
According to a note this morning, the broker has retained its buy rating but trimmed its price target to $19.75.
Based on the current Fortescue share price, this implies potential upside of 38% for investors over the next 12 months.
In addition, Bell Potter is forecasting a $2.25 per share fully franked dividend in FY 2022. This represents a 15.7% yield, extending the total potential return to almost 54% for investors.
What did the broker say?
Bell Potter was pleased with Fortescue's recent first quarter shipments. It notes that the company's record shipments of 45.6Mt at a C1 cost of US$15.25 per wet metric tonne (wmt) was in line with its estimate of 46Mt at US$15.36 per wmt.
However, taking some of the shine off the quarter was the increasing discount for its low grade ore.
Bell Potter commented: "If there was a negative from the result it was that price realisation in the September quarter dropped to 73% of the Platts 62% CFR index, from 84% qoq. This looks to have been driven by a combination of a lower grade product blend shipped by FMG and a qoq increase in pricing spread between the 62% Fe benchmark price and lower grade benchmarks."
And while this and increasing Fortescue Future Industries costs have led to earnings estimate reductions, Bell Potter remains very positive on the Fortescue share price.
It explained: "Higher pricing discounts and increased costs expensed by Fortescue Future Industries (FFI) are the primary drivers of the changes to our earnings forecasts. Earnings for FY22, FY23 and FY24 are cut 8%, 1% and 6% respectively. Our FY22 dividend is lowered 8%, to A$2.25/sh and our NPV-based valuation is lowered 5%, to $19.75/sh. Strong free cash flows, good cost control and an 'on-track' production performance emphasise the quality of the business and we retain our Buy recommendation."
