WOOD Flash – Ferrexpo: 1H19 financial results - strong growth in EBITDA, no update on the governance review
Ferrexpo has published its 1H19 financial results, following a strong first half for iron ore prices. EBITDA jumped 38% hoh and 59% yoy to USD 372m (1% above our estimate), with FCF rising 153% hoh to USD 142m, 19% above our estimate. The company also announced a US¢6.6/share interim dividend, double the level of 1H18 but still only a 2.1% yield: Ferrexpo usually pays a modest interim dividend, with the main payout being announced at the full-year stage. We believe the results should be taken as broadly neutral for the share price. The Independent Review into the use of funds donated by Ferrexpo to the Blooming Land charity remains ongoing but, so far, there have been “no material changes to the company’s interim conclusionsâ€, published in the 2018 results.We continue to see upside in Ferrexpo. Since our last update in May, iron ore prices have continued to increase vs. the gradual decrease that we included in our model, implying upside to our existing numbers. On those numbers, the stock was already cheap at 2.6x 2019E EV/EBITDA and an 8.8% yield, despite significant capex for output expansion, from 10.6mt this year, to 20mtpa in the medium term. While the stock is cheap mainly due to the ongoing concerns about Ferrexpo’s governance, we believe this discount is excessive at present, and that the stock represents very good value at current levels.
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.
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