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 – Sell at GBX 471.00

• Trading near a 52-week high, while on a trailing 12 months, EV/Sales and Price/Book Value multiples of FXPO are currently higher than the corresponding multiples of the Metals & Mining industry, reflecting overstretched valuations.
• The industry outlook seems dim in the short-term as metal prices need some correction because currently, it is trading on the higher side.
• Despite the decent financial performance in FY20, the Company expects the trading environment to remain uncertain in the near term.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 58.41 level), which means the stock price could decline in the short term.

Key Risks

• The weak demand for global steel amid Covid-19 disruption can affect the business further.
• 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.

Q1 FY21 Production Update (as on 8 April 2021)

(Source: Company Website)

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

One Year Share Price Chart

 (Research Done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21E) (Illustrative)

Conclusion

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. Further, in 2021, the Company expects an increase in production from the level seen in the previous year. However, 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. As the Company operates in multiple geographies, the profits can be impacted negatively due to foreign exchange rate fluctuations. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the pandemic and the impacts of the UK exit from the European Union. The stock made a 52-week low and high of GBX 139.65 and GBX 506.00, respectively.

Based on the uncertain outlook and economic downturn, we have given a “Sell” recommendation on Ferrexpo at the current price of GBX 471.00 (as on 28 May 2021 at 9:00 AM GMT), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance.

Medica Group Plc

Medica Group Plc (LON: MGP) is a Health Care Equipment & Service company providing teleradiology services. The Company presently offers three services to hospital radiology departments, including routine plain film (Routine PF), Routine cross-sectional (Routine CS) and NightHawk.

On 16 June 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Sell at GBX 167.00

• Trading near a 52-week high, while on a trailing 12 months, Price/Earnings, EV/EBITDA, EV/Sales and Price/Cash Flow multiples of MGP are currently higher than the corresponding multiples of the Healthcare Providers & Services industry, reflecting overstretched valuations.
• In FY20, ROE was lower than the industry median.
• Both top-line and bottom-line were down by double-digit percentage in FY20 from the previous year.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 61.87 level), which means the stock price could decline in the short term.

Key Risks

• There is a risk that the integration of GDI (which was acquired in November 2020) is more difficult than envisaged and that the performance of the business post-acquisition does not meet expectations.
• The Company operates in a strict regulatory environment; any change in regulations or government policies could affect its overall business.
• The performance can be impacted with ongoing Covid-19 challenges.

Recent News

On 11 May 2021, the Company announced that Steve Whittern would be stepping down from the Board on 16 June 2021.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 11 May 2021)

(Source: Company Website)

• The revenue decreased by 20.9% YoY, with Elective revenues decreased by 49% YoY and NightHawk revenues surged by 4% YoY.
• Led by careful management of both pricing and costs, the Company saw a resilient gross profit margin at 47.4%.
• Underlying operating profit declined by 55.7% YoY, due to the impact of Covid-19 on revenues.
• On 31 December 2020, the net debt stood at £3.9 million, with positive cash generation through 2020 offset by the impact of the initial consideration of £14.4 million for GDI acquisition.
• The Board proposed a final dividend per share of 1.70 pence, bringing a total dividend per share of 2.55 pence.

One Year Share Price Chart

 (Research Done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21E) (Illustrative)

Conclusion

In Elective business, the Company saw an improvement, with positive month on month improvement in levels of Elective teleradiology activity. It made a joint venture with Integral Diagnostics Limited, named MedX, which will provide teleradiology reporting services and increased reporting capacity in Australia, New Zealand, the UK and Ireland. It completed the earnings-accretive acquisition with RadMD. In early May 2021, it also completed a refinancing of the group's debt through a new three-year £30 million RCF facility. However, MGP remained cautious regarding the additional cost and uncertainty associated with the Covid-19 pandemic.

Overall, the remainder of the year remains cautious as the uncertainty surrounding the UK's exit from the European Union. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the pandemic and the impacts of the UK exit from the European Union. The stock made a 52-week low and high of GBX 95.00 and GBX 167.50, respectively.

Based on the poor fundamentals, uncertain outlook, economic downturn, and valuation conducted above, we have given a “Sell” recommendation on Medica Group at the current price of GBX 167.00 (as on 28 May 2021 at 8:38 AM GMT), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

*The reference data in this report has been partly sourced from REFINITIV.

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