Ferrexpo: Good 1H19 results, estimates increased (stays BUY)

Ferrexpo released its 1H19 financial results last week, which were broadly in line with our estimates. Since our most recent report, in May, Ferrexpo has still not realised the upside we anticipated, despite iron ore prices remaining elevated. Furthermore, Ferrexpo’s cost performance in 1H19 was better than we forecast previously, resulting in lower guidance for the 2019E cash costs. Even if iron ore prices fall from here (as we expect), our previous forecasts already appear conservative, so we have increased our forecasts for the 2020/21/22E EBITDA by 9%/14%/8% and our price target (PT) by 14%, to GBp 344/share, justifying our BUY recommendation. Now, we see Ferrexpo trading at 2.4x/3.0x 2019/20E EV/EBITDAs, and 3.0x/4.0x 2019/20E P/Es, with a 2019E dividend yield of at least 9.6%, and potentially 10.4% in 2020E, despite the company investing to grow from 10.6mt this year to 20mt in the next decade. We understand the concerns that investors have about Ferrexpo’s governance but, at these levels of valuation, in a market that is likely to be tight for the next few years, we believe it is worth the risk.