🕐08.07.14 - 10:54 Uhr

INVESTEC: FERREXPO : OPERATIONS ON TRACK, PRICING THE MAIN HEADWIND - BUY



Ferrexpo (Price: 141p | Target: 162p | Rec: Buy) In its 2Q production report released yesterday (Monday), Ferrexpo reported total pellet production of 2.55mt, down 9.4% on Q1 production of 2.82mt, due to planned refurbishment of part of the pellet line.

The company remains on target to achieve an annualised rate of 12mtpa in 2H14.

While our production and cost outlook for the company remains unchanged, our target price has come down following a recent downward revision of our near-term iron ore price assumptions.

We maintain our Buy rating. * This scheduled refurbishment of the pellet line number 3 was completed successfully, and in a record time of six weeks.

Notwithstanding this, Ferrexpo still managed a 2.3% y-o-y lift in pellet production in the first half, to 5.37mt (5.21mt of this from own ore).

Importantly, production of higher grade 65% Fe pellets has increased by 13% y-o-y.

We remain comfortable with our FY14E total production estimate of 11.4mt, increasing to 12.0mt in FY15E. * We recently reviewed our price assumptions, reducing our near-to-medium term iron ore price forecasts by c.$10/t (c.9%) for the benchmark 62% Fe product.

We now assume $111/t, $108/t and $103/t in FY14E, FY15E and FY16E respectively, before reverting to our long-term $95/t (unchanged).

As a result, our EPS estimates for Ferrexpo are down by an average of 30% over FY14E-FY16E.

This compares favourably against the FY14E-FY16E EPS reduction of 16% for Rio Tinto and c.60% for the West African producers.

Notwithstanding the reduced cash flows, we still see Ferrexpo as capable of proceeding with its proposed FYM concentrator, should it elect to do so. * Our target price is based on an equal blend of risked NPV and a peer group PE multiple of FY14E earnings.

This has reduced our TP by 9% from 176p to 162p per share.

Key risks include the iron ore price and Ukraine political risk.
To access the full note please click here Analyst: Hunter Hillcoat +44 (0)20 7597 5182
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