Market has overlooked Ferrexpo turnaround - Evolution's Kernot

The City has failed to grasp the "marked turnaround" in the fortunes of iron ore producer Ferrexpo (LON:FXPO), according to Evolution Securities’ respected mining analyst Charles Kernot.

Setting a 450p a share price target, he tells clients: "From all perspectives we believe that Ferrexpo is undervalued.

"This is in terms of the size of its resource, its income and earnings and the potential for future growth that could be funded from internal cash generation rather than external finance

."
The glowing assessment of the company’s prospects was given in the wake of what was generally considered to be a disappointing set of interims from the London- listed Ukrainian giant.

However Kernot thinks the doubters need to dig a little deeper into the figures.

"Ferrexpo’s interim results were up to expectations – although they initially disappointed a market that had failed to grasp the marked turnaround in performance between the first and second quarters," the Evo analyst explained.

"The second half is set to be substantially better as the group benefits from two quarters of high prices rather than just one. The company is also increasing its capital expenditure in line with increased cash flow generation and this is set to yield additional production growth.

"We believe this is not reflected in the share price."

Kernot predicts that pre-tax profits will jump to £492 million this year from a modest £82 million in 2009. Based on that prediction, the shares are worth a very modest 6.9 times forward earnings.

Elsewhere, Deutsche Bank has restated its 393p a share price target and says Ferrexpo’s balance sheet is strong enough to finance future growth, with debts stable at US$257 million.