Ferrexpo EBITDA swells 79% yoy in 1H17

EBITDA at Ukraine’s largest iron ore pellet exporter
Ferrexpo (FXPOLN, FXPO LN) swelled 79% yoy to USD 284 mln in 1H17, according to
financial results published on August 3. The company’s revenue increased 29%
yoy to USD 591 mln (including pellet revenue of USD 562 mln), despite pellet
sales volumes dropping 16% yoy to 5.07 mmt. That suggests average prices of
Ferexpo’s pellets increased 56% yoy to USD 111/t in 1H17.

Average prices of 62% iron ore fines in China advanced
44% yoy, Ferrexpo said, which implies the company’s pellet premium increased.
Average C1 cash pellet production cost rose 23% yoy (or by USD 6.0/t) to USD
31.7/t, driven mostly by higher fuel costs. Also, due to lower production
volumes (pellet production declined 10% yoy to 5.16 mmt), maintenance costs
increased by USD 2.5/t yoy in 1H17.  

Ferrexpo’s CapEx swelled 88% yoy to USD 45 mln in 1H17
and the company says its full year CapEx will be about USD 100 mln. It
generated positive free cash flow of USD 149.3 mln. Its total debt decreased
28% YTD to USD 574 mln. Its net debt-to-LTM-EBITDA ratio improved to 0.96x as
of end-1H17 from 1.6x as of Dec. 31, 2016.

Andriy Perederey: Ferrexpo benefitted from relatively stable benchmark iron ore prices
and increased pellet premiums, which were above our expectations. Based on
this, we are upgrading our expectations on Ferrexpo’s ability to generate
EBITDA this year to USD 39/t (or about USD 440 mln) from USD 33/t. This also
means the company’s ability to meet all its debt obligations in 2017 and 2018
looks solid. We retain our neutral view on Ferrexpo bonds, seeing the upside
and downside risks of its price being balanced.