Ferrexpo PLC

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

FXPO will pay an interim quarterly dividend of 6.60 US cents per share on 28 January 2022, while the ex-dividend date was 06 January 2022.

Investment Rationale for Valuation – Buy at GBX 252.00

• Robust H1 FY21 Performance: FXPO’s top-line revenue and bottom-line profitability demonstrated significant year-on-year growth during H1 FY21.
• Production Growth: The Company had shown a robust quarter-on-quarter growth of around 18% in the total iron ore pellet production during Q4 FY21.
• Strong Profitability: The EBITDA margin and the net margin of FXPO remained more than the respective industry median during H1 FY21.
• Increase in Net Cash: FXPO had strengthened its balance sheet with an increase in net cash from USD 4 million as at the end of 2020 to USD 117 million as of 31 December 2021.
• Technical Indicators: From a technical standpoint, FXPO’s stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price.

Key Risks

• Ukraine Crisis: The ongoing tension between Russia and Ukraine may hamper the mining operations.
• Macroeconomic Uncertainty: The ongoing economic instability with Omicron coronavirus variant, potential tightening of monetary policy, subdued consumer confidence, and currency fluctuations can also impact business performance.

Recent Developments 

Non-Executive Director: On 30 December 2021, FXPO updated regarding the appointment of Natalie Polischuk as an Independent Non-executive Director 

Q4 FY21 Production Highlights (for three months ended 31 December 2021, as of 12 January 2022)

 (Source: LSE Website)

• Iron Ore Production: The Company had shown a marginal increase of around 0.5% in the total commercial production and approximately 0.02% increase in total pellet production during FY21.
• High-Grade Pellets Production: Production of higher grade (67% Fe) direct reduction pellets increased by 27% to 431 thousand tonnes in 2021.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

The Company had expected additional demand for high grade low impurity pellets, boosted by the tighter emissions controls and government regulation, mainly in the EU. Meanwhile, the Company had shown tremendous improvement in the net cash position during FY21. Thus, it remained well-positioned to pursue growth opportunities. The stock made a 52-week low and high of GBX 252.00 and GBX 513.00, respectively.

Based on the strong top-line & bottom-line business performance during H1 FY21, and valuation as done using the above method, we have given a “BUY” recommendation on Ferrexpo PLC at the current market price of GBX 252.00 (as on 18 January 2022 at 10:51 AM GMT), with lower-double digit upside potential based on 2.33x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Phoenix Global Resources PLC

Phoenix Global Resources PLC (LON: PGR) is a FTSE AIM Index listed upstream oil and gas entity.

Investment Rationale – SPECULATIVE BUY at GBX 3.50

• Surge in Oil Price: The Brent crude price had breached 7-year high levels due to the tight supply.
• Extension of Repayment Date: Mercuria has provided financial support to PGR as it has agreed to extend the repayment date for the bridging facility's principal and interest to 31 December 2022.
• Strong Average Daily Oil Production: The adverse impact of the 2020 shutdown led to an increase in average daily oil production from 3,546 bopd (“barrels of oil per day”) in H1 FY20 to 4,258 bopd for H1 FY21.
• Technical Indicator: From a technical standpoint, the momentum oscillator 14-day RSI (~32.41) is in the oversold zone, while the stock price is hovering near the lower Bollinger Band.

Key Risks

• Cyber Security Risk: The cybersecurity risk has been identified as an emerging risk since breaching of data might hamper operations of the Company to a certain extent.
• Diminished access to Debt Markets: Failure to obtain funding from financial markets after an interest rate hike may result in the delay of exploration activities and development programmes.

H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as on 14 September 2021)

(Source: Company Website)

• Significant Increase in Top-Line Revenue: The increase in the realised price per barrel had enabled PGR to show a top-line revenue increase from USD 24.9 million during H1 FY20 to USD 36.1 million for H1 FY21.
• Improved Profitability: PGR had narrowed down the net loss from negative USD 55.42 million during H1 FY20 to negative USD 13.68 million for H1 FY21.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion

The Company has a significant drilling pipeline for 2022, including the completion & drilling activities in Corralera and Mata Mora. Meanwhile, the positive impact of the cost reductions and corporate restructure remained visible in the resilient business performance during the H1 FY21. The stock made a 52-week High and Low of GBX 7.45 and GBX 3.50, respectively.

Based on the extension of repayment date, decent financial performance, and operational progress, we have given a “SPECULATIVE BUY” recommendation on Phoenix Global Resources PLC at the current market price of GBX 3.50 (as on 18 January 2022 at 10:08 AM GMT).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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