Central Iron Ore increases its 1Q14 EBITDA 46% on a one-off

Iron ore concentrate and pellets producer Central Iron Ore (CGOK UK), part of Metinvest, reported an EBITDA of USD 114 mln in 1Q14 (+46% yoy, +36% qoq). It generated a net income of USD 75 mln (+47% yoy and 50% qoq, EPS of USD 0.1/share). The company’s revenue grew only 3% yoy to USD 170 mln (-2% qoq), while sales of finished iron ore products declined 6% yoy to 1.5 mmt. 

Roman Topolyuk: The primary reason of such substantial increase in earnings of Central Iron Ore was an “other operating income” item, which seems to be a one-off. Secondly, the average selling price of the company’s products grew 9% yoy contrary to Ukraine’s local market and the global market 18-19% yoy decrease. Moreover, we estimate the positive effect from hryvna devaluation has not yet been accounted for in production costs of 1Q14, which grew 5% yoy in USD terms. 

Modeling a 30% yoy hryvna average devaluation to 10.5 UAH/USD, which will be partially offset by a 10% yoy projected decrease in iron ore prices, we expect CGOK to report an EBITDA of USD 365 mln (+11% yoy), and an EPS of USD 0.24/share (+46% yoy) in 2014.