Ferrexpo EBITDA decreases 40% yoy in 1H12

Ferrexpo (FXPO LN) reported today a 40% yoy decrease in EBITDA to USD 240 mln in 1H12, a 15% decline in revenue to USD 731 mln, and a 50% yoy plunge in net income to USD 146 mln. VAT receivables on the balance sheet, as of June 2012, grew 29% to USD 222 mln compared to end-2011. Net debt increased from USD 80 mln in December 2011 to USD 251 mln as of end-1H12. Ferrexpo’s implied selling price in 1H12 decreased 12% yoy to USD 140/t, we estimate. The C1 cash cost of production grew 25% yoy to USD 60.4/t. The company reported reaching its first ore at the Yeristovo deposit in 1H12, and said works at the site were running according to schedule, which foresees launching commercial production in 2013. Ferrexpo did not comment on the extension of its license for the Yeristovo deposit, which expires this month.

Roman Topolyuk: Ferrexpo’s financial results for 1H12 were lower than we expected due to a lower selling price (3% below our projections) and lower sales volumes (only 95% of pellet production was sold), which occurred amid weakening market conditions. A buildup in inventories on its balance sheet and accumulation of VAT receivables contributed to the increase in the company’s net debt. Without any information on the extension of the Yeristovo license, we estimate the risk of a delay in extension of the permit as considerable. We reiterate our HOLD recommendation for Ferrexpo with a 12M target price of USD 3.79/share, implying 24% upside.