Ferrexpo EBITDA rises 1% yoy, EPS falls 14% yoy in 1H13

Ferrexpo (FXPO LN) reported USD 244 mln in 1H13 EBITDA (+1% yoy) while revenue increased 6% yoy to USD 775 mln. Its EBITDA margin slid 2pp to 31% compared to 1H12. EPS decreased 14% yoy to 21.43 cents in the period. The company’s net debt increased 5% qoq to USD 566 mln as of end-1H13. Ferrexpo’s C1 production costs grew 2% yoy to USD 61.8/t in 1H13, while CapEx decreased 33% yoy to USD 147 mln.

Roman Topolyuk: In our view, Ferrexpo offered a set of neutral results: 1H13 EBITDA came in 7% better than consensus expectations, while EPS was 2.6% lower. Net debt continued to grow in 2Q13, but at a much reserved pace due to an agreement with Ukrainian authorities exchanging VAT reimbursement for corporate tax prepayment, which will cap possible future outflows of working capital.

As the half-year data imply, a ramp up of Yeristovo production enabled an improvement in quarterly C1 costs 7% qoq to USD 59.7/t. The yoy decline in Ferrexpo’s 1H13 bottom line resulted solely from a growing depreciation charge. On the bright side, Ferrexpo reduced its negative free cash flow (operating cash flow less CapEx) in 1H13 to USD 67 mln, compared to USD 144 mln in 2H12, as the company has moved closer to finalizing its USD 647 mln CapEx program.

The stock trades at 3.5x EV/EBITDA 2013, which is a deep discount to the range of selected peers’ multiples of 4.7-6.4x. Though, given the large non-operational risks related to Ferrexpo today, we don’t expect the discount to disappear in the near future.