Ferrexpo Plc

Ferrexpo PLC (LON: FXPO) is a FTSE 250 Index listed iron ore pellet producer with mines in Ukraine (Poltava region) and sales operations internationally.

On 27 May 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Hold at GBX 501.22

• Resilient financial performance in 2020, underpinned by robust operational growth.
• The Board proposed a final ordinary dividend per share for FY20 of 13.2 US cents, reflecting a strong balance sheet, robust iron ore prices and pellet premiums.
• On a trailing 12 months, EV/EBITDA, Price/Earnings and Price/Cash Flow multiples of the FXPO are currently lower than the Metals & Mining Industry, which shows that shares are undervalued against the industry.
• In FY20, the Company has decent fundamental metrics as it has maintained a profitability margin and ROE above the industry median.
• The debt/equity ratio recorded by the Company in the past two years was considerably below the industry median. In FY20, the debt/equity ratio was 0.18x.
• From a technical standpoint, 200-day SMA (GBX 254.58) supports an upside potential.

Key Risks

• The growth trajectory can be impacted by various factors, such as corruption risk arising from operations in Ukraine, lower iron ore prices, increasing freight rates, and operational risk regarding production stoppages or equipment failures.
• Furthermore, the weak demand for global steel amid Covid-19 disruption can affect the business further.

Q1 FY21 Production Update (as on 8 April 2021)

(Source: Company Website)

• On a year-on-year basis, the total iron ore pellet production was in line with pellet production in Q1 FY20.
• The Company stated that it recorded additional production of 65,000 tonnes of high-grade concentrate for sale in Q1 FY21.
• Production of high-quality pellets represented 100% of total pellet output in Q1 FY21.
• The Company has faced a minimal impact of Covid-19 during Q1 FY21.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

In 2021, the Company expects an increase in production from the level seen in the previous year. In the second half of 2021, the pellet production is expected to be higher and deliver approximately 0.5-1.0 million tonnes per annum. Overall, the outlook for pellet premiums in 2021 is positive. The Company has achieved strong financial and operational performance during FY20, with a solid net cash position. The operations and logistics of the Company were marginally disrupted by Covid during Q1 FY21. The Company is particular regarding paying dividends and maintaining low debt on its balance sheet. Further, Ferrexpo Plc is the third-largest exporter of pellets to the global steel industry. The stock made a 52-week low and high of GBX 109.82 and GBX 506.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for Ferrexpo Plc at the current price of GBX 501.22 (as on 12 May 2021 at 8:50 AM GMT) and will recommend fresh buying at the right time.

SolGold Plc

SolGold Plc (LON: SOLG) is a gold exploration Company that focuses on discovering and defining world-class copper-gold deposits.  Its office is located in Australia, UK and Ecuador. The Company is listed on the Toronto Stock Exchange and London Main Board under the code ’SOLG’.

Rationale for Valuation – Avoid at GBX 30.17

• At present, the Company is not generating any revenue and is a loss-making entity which is yet to prove its operational and financial viability.
• On a trailing 12 months, EV/EBITDA, Price/Earnings, and Price/Cash Flow are in the negative domain.
• Despite the decent financial performance in H1 FY20, the Company expects the trading environment to remain uncertain in the near term.
• The Company’s profitability metrics are in negative territory, whereas the industry has been delivering positive numbers.
• The Company is dependent upon funding through external sources to run its business operations.
• From a technical standpoint, 14-day RSI reflects that the stock price could decline in the short term.

Key Risks

• The financial performance is highly dependent on the Gold price, and the Gold market is cyclical and sensitive to economic changes.
• The Global Covid-19 pandemic could result in the suspension of operations and increase in labour absenteeism, and thus, the operational costs.
• Moreover, there are several financial risks associated with fluctuation in the foreign exchange & interest rates, availability of adequate working capital, and credit defaults.

Financial Highlights (for the six months ended 31 December 2020 (H1 FY21), as on 12 February 2021)

(Source: Company Website)

• During H1 FY21, the Company capitalised USD 24.6 million of expenditure on the Alpala project.
• The Company had not generated any revenue, while the loss before tax stood at USD 6.9 million.
• At the period end, the cash and cash equivalents stood at £91.1 million, increasing from the previous period.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

The Company is in the development stage and do not generate any revenue for the period. Further, the near-term economic outlook stays unclear.  Moreover, the Covid-19 pandemic continued to create operational challenges while the global uncertainty remained over the supply chain distribution. In the future, the Company may face emerging headwinds and cost pressures. Furthermore, the prolonged impact of the COVID-19 outbreak continued to affect its financial results, plans, operations, outlook, goals, reputation, liquidity and stock price. According to the Gold market, the Gold price has moved sharply higher in the past few months, the price may experience some consolidation in the near term. The stock made a 52-week low and high of GBX 19.00 and GBX 43.90, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on SolGold at the current price of GBX 30.17 (as on 12 May 2021 at 9:00 AM GMT). 

*Dividend Yield may vary as per the stock price movement.

Disclaimer

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