Ferrexpo: Paying for quality (BUY - reinitiation of coverage)
We reinitiate on Ferrexpo with a BUY recommendation and a GBp 275/share PT, implying 22% upside. We are bullish on pellet premiums, given China’s ongoing environmental improvements, and believe that existing producers stand to benefit from the expected deficit in this market. Ferrexpo has a large, low-cost, scalable asset, which could be scaled up from 10.4mt of pellets in 2018E to 20mt ultimately (although we assume only 12mt by 2021E, until we see the feasibility study for further expansion), so Ferrexpo has significant scope to add value for shareholders, in our view. At 4.4/3.7x 2018/19E EV/EBITDAs, with 12.2%/13.5% FCF yields, this is too cheap for a stock with such growth potential. Through either growth or dividends, potentially a 12% yield this year if it chooses to pay out 100% of its FCF (although more likely 6%), we see upside in Ferrexpo.Ferrexpo is an iron ore pellet producer. Co. produces, develops and markets its product for sale to the metallurgical industry. Co. operate two mines and a processing plant near Kremenchug in Ukraine, and an interest in a port in Odessa. Co. also owns logistics assets in Austria which operate a fleet of vessels operating on the Rhine and Danube waterways and an ocean-going vessel. Co.'s operations are integrated from iron ore mining through to iron ore concentrate and pellet production and subsequent logistics. Co.'s mineral properties lie within the Kremenchug Magnetic Anomaly and are being extracted at the Gorishne-Plavninskoye and Lavrikovskoye and Yeristovskoye deposits.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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