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Ferrexpo's textbook turnaround

We did not call this one correctly, but then few could have predicted Ferrexpo's resurgence in 2016.
March 22, 2017

At the risk of sounding hyperbolic, MBA instructors should teach Ferrexpo 's (FXPO) 2016 turnaround as a textbook example of effective crisis management. At the start of the year, the iron ore pellet specialist was facing potentially crushing debt payments, an eight-year low in its key commodity and a cash balance wrecked by the collapse of its bank. Preliminary results show how Ferrexpo not only survived, but even managed a surprise return to the dividend list.

IC TIP: Hold at 164p

Understandably, the primary focus was on outgoings. Capital expenditure of $48m (£39m) focused only on sustaining operations, while unit cash costs reduced by 13 per cent to a 10-year low of $27.70 per tonne - in part thanks to a weakened hryvnia, Ukraine's currency. At the same time, sales teams secured a larger volume of orders in time for the second-half recovery in both iron ore prices and the premium applied to higher-grade pellets. This, together with the sale of 373,000 tonnes of pellets held on stock at the end of 2015, allowed the group to more than double net cash flows to $332m, and repay $196m of debt.

On average, analysts are forecasting pre-tax profits of $373m and adjusted EPS of 54¢ this year, and $214m and 30¢ in 2018.

FERREXPO (FXPO)

ORD PRICE:164pMARKET VALUE:£0.96bn
TOUCH:163.4-164p12-MONTH HIGH:179pLOW: 25p
DIVIDEND YIELD:1.6%PE RATIO:6
NET ASSET VALUE:55¢NET DEBT:182%

Year to 31 DecTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20121.4026637.16.6*
20131.6030544.86.6*
20141.3925430.56.6*
20150.9625.45.653.3
20160.9923132.03.3*
% change+3+813+466-

Ex-div: 4 May^

Payment: 31 May^

£1=$1.25

*Excludes special dividends of 6.6¢ for 2012, 2013 and 2014, and 3.3¢ for 2016, which goes ex-div on 30 Mar and is due to be paid on 11 Apr.