6th Aug 2015 10:51
LONDON (Alliance News) - The first half results reported by Ferrexpo were above expectations and the company surprised in several areas, including by demonstrating it can react to falling commodity prices, says an analyst at Deutsche Bank.
The miner reported a slump in pretax profit in the first half of 2015 as the collapse in world iron ore prices offset a rise in production volumes, but its earnings before interest, tax, depreciation and amortisation of USD176 million beat Deutsche Bank analyst Rob Clifford's forecast of USD167 million.
Clifford says the results were mainly due to its costs falling to an average of USD33.4 per tonne from USD44.1 per tonne a year earlier due to lower costs, better foreign exchange rates and lower freight rates.
Ferrexpo also slashed its capital expenditure budget by USD7 million, reduced its net debt by USD25 million and paid an interim dividend of 3.3 cents per share which was flat from the same period a year earlier.
"This was a solid result and clearly demonstrated the elasticity of mining costs with commodity price falls," Clifford adds. "The company strategy to improve product quality and increase its export markets is clearly paying dividends in the falling price environment.
"Despite the lowered Ebitda from year ago, the company is now in a better financial and operating position," he adds.
Ferrexpo is now producing more high grade product, with 89% of its production consisting of higher-quality 65% grade iron pellets, compared to only 50% of its production being of higher grade material a year earlier, which allowed the company to achieve an 11% premium to the index price. says Clifford.
However, concerns remain about the company's exposure to Ukraine due to the political and economical uncertainty surrounding the country. "The political backdrop in Ukraine remains an investment risk, but to date has had minimal operational impact, with some power outages in December and not repeated so far this year," says Clifford.
"In a positive change, all (Ukrainian) government VAT repayments have been made and there were no writedown items relating to VAT versus USD7 million last year," he adds.
Clifford raises his 2015 full year Ebitda target for Ferrexpo by 5.4% to USD238 million and reiterates its Buy rating with a target price of 200.00 pence per share.
"This is a well operated asset base with a high quality product and good growth options ? volatility in valuation rests with exogenous factors in our view," says Clifford.
Ferrexpo shares were up 0.9% to 59.25 pence per share on Thursday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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