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Ferrexpo (LSE:FXPO) is a Ukraine-based FTSE 250 mining firm that has been hit exhausting by the Russian invasion. It mines iron ore at a number of places countrywide and converts the mineral into pellets earlier than exporting it by way of a delivery port.
Whereas most of its operations are largely exterior the battle zone, delivery by way of the Port of Pivdennyi has confirmed difficult. Provide chain disruption and logistical constraints have hit the share worth exhausting this 12 months, leading to a 39% drawdown.
However a optimistic score from Barclays final week adopted by a good earnings report two days later has given the value a lift. As markets opened on Monday (22 April), a rally started that added over 14% to the share worth.
With the value nonetheless comparatively low, is that this an inexpensive shopping for alternative – or the beginning of a so-called sucker’s rally?
Excessive threat stays
It’s troublesome to gauge whether or not the value rally is the results of optimistic information concerning the battle. US Home representatives have handed a long-delayed $61bn navy assist bundle to Ukraine. Russia responded with a promise to accentuate assaults on storage bases for Western weapons. With Ukraine struggling to carry key defensive places within the battle space, there’s concern as as to whether the help bundle will arrive in time.
Along with the Russian risk, Ferrexpo faces authorized challenges from the state prosecutor. In early March, the prosecutor issued a court docket order to freeze the corporate’s financial institution accounts on suspicion of unlawful mining exercise. Ferrexpo has claimed the case is with out benefit however put apart $131m to cowl any associated prices, contributing to a $85m pre-tax loss reported for 2023.
Potential for restoration?
Regardless of a dip because of the ongoing logistical points, Ferrexo’s 2023 income got here in increased than anticipated. This may very well be the results of restarting a pelletiser operation that’s been dormant, suggesting a rise in European iron ore demand. It additionally reportedly holds $108m in money reserves, serving to prop it up within the occasion of any unexpected circumstances.
Consensus estimates counsel the inventory worth is undervalued by round 77% primarily based on future money flows, with earnings anticipated to develop 116% per 12 months going ahead. However I’m uncertain these small wins sufficiently outweigh the dangers. The optimistic score from Barclays is hardly a pattern, with no different notable analysts highlighting the inventory.
In my view, no estimates can overshadow the more and more daunting risk of a conflict that doesn’t look prone to finish any time quickly. Certain, I admire a superb discount as a lot as the subsequent individual however my threat tolerance isn’t that top. Till there may be definitive proof of a sustained de-escalation within the Ukrainian battle, I wouldn’t threat my capital on Ferrexpo inventory.
That’s to not say it isn’t a strong firm with nice financials. In any regular state of affairs, I’d most likely price its prospects extremely. However proper now, it’s exhausting to argue that the corporate is in direct management of its future.
