Ferrexpo pellet output declines 1.7% yoy in 4M16

Ferrexpo’s (FXPOLN, FXPO LN) iron ore pellet output  fell 4% m/m and 7% yoy to 973 kt in April, Interfax-Ukraine reported on May 18. Pellet production in 4M16 declined 1.7% yoy to 3,859 kt.

Roman Topolyuk: Despite the decline at the beginning of the year, we think Ferrexpo’s pellet production may catch up to last year’s result in 2H16. We are sticking to our projections of 11.9 mmt of pellet output in 2016 (+2% yoy), and EBITDA of USD 313 mln. Iron ore prices year-to-date have averaged at USD 52/t in China, or 6% higher than our full-year 2016 forecast. With relatively stable production and firm prices, the company will cope well with banking debt maturing in 2016. In our view, the most important redemptions left are two monthly installments in June-July of USD 17.5 mln each, and one of USD 44 mln in November.

Ferrexpo Eurobonds have reached our target of 79 cents per dollar and are trading at YTM of 19.9%, which is around a 1,000 bps spread to sovereign notes maturing in 2019. The spread correctly reflects the risk that the company may need to shift the maturity of its notes two years forward, once iron ore prices begin tumbling in 2017. Our view on FXPOLN notes is neutral.