CMRG negotiations bite harder than expected; point of max bearishness is close; retain OW

Key takeaways: 1) FMG has pre-reported selected quarterly results – while shipments were in line with our forecast at 46.8Mt, sales have come in ~4Mt lower after prolonged CMRG negotiations led to inventory build; 2) as a result of lower sales and a working capital build, net debt of $2.8bn was above our $2bn estimate; and 3) realised prices were 4% below JPMe in the quarter at $80/t, with the price realisation now falling to 18% below the benchmark. We are adjusting our FY27 earnings down 14% to account for the weaker 1Q and likely 2Q. There are no guidance changes at this stage, but FY27 now depends on CMRG negotiation outcomes. We retain our positive investment view, and note the point of maximum bearishness for the share price is likely close on the combination of weak headline iron ore markets, elevated freight rates on Middle East conflict impacts, and CMRG negotiations weighing on sales / price realization. FMG trades on a P/NPV of 0.73x.