Ferrexpo pellets price slides 9% yoy in 4M12

Ferrexpo’s (FXPO LN) AGM held yesterday approved a regular dividend of USD 0.033/share (implying 1% dividend yield) and authorized a share buyback of up to 10% of the number outstanding. Also shareholders accepted an option to buy 500 railcars from Stakhaniv Wagon (SVGZ UK) which will increase the company’s railcar fleet to more than 2,400 units, boosting its transportation capacity to 12 mmt of pellets a year. In addition, the chairman of board said Ferrexpo’s average pellet price decreased 9% yoy in 4M12, while volumes remained flat at 3 mmt. Overdue VAT receivables increased USD 23 mln to USD 195 mln as of April 2012.

Roman Topolyuk: The size of dividends and a new approval of a share buyback came in line with the company’s established policy. Acceptance of railcar purchase option is also neutral in our view, but we expect it will be exercised closer to when Ferrexpo’s output nears annualized production of 12 mmt that we expect will happen in 2014. The company’s pellet price is likely to continue falling in May-June, averaging at around USD 145/t in 1H12 (-10% yoy, FOB/DAF). Since Ferrexpo sells pellets based on quarterly and half-year contract, the decline in its selling price was lower than in the spot market (-15% yoy to USD 170/t in 5M12, CFR, China). However, the decrease in the spot market will negatively affect Ferrexpo’s price in 3Q12. The accumulating VAT receivable has relatively negative implications for cash flows.