HSBC downgrades Ferrexpo, says stock fully valued
HSBC downgraded Ferrexpo to ‘hold’ from ‘buy’ and trimmed the price target to 225p from 230p, saying the stock is now fully valued.
The bank pointed out that recent share price strength has pushed the stock’s 12-month forward EV/EBITDA to 5.3x and a price-to-earnings of 8.0x, and that these multiples are trading at 15% and 20% premiums to their through-the-cycle averages and concur with its discounted cash flow-based valuation metric.
It said the company’s first-half results were good, with reported earnings before interest, tax, depreciation and amortisation of $287m, well ahead of company-collated consensus but lower than HSBC’s $311m forecast. In addition, EBITDA was substantially higher than the past two six-monthly periods as the impact of iron ore price and pellet premium strength offset higher C1 costs and lower volumes.
However, HSBC said Ferrexpo would be hard-pressed to replicate this result in the second half of this year and FY18.
“We expect earnings to decline over the next eighteen months, mainly on the premise of weaker iron ore prices and lower pellet premiums. While this is our forecasts, there is clearly upside risk to this view, at least in the near term, as both price and pellet premiums are elevated and are currently 34% and 14% higher than our 2H17 averages.”
At 1030 BST, the shares were up 0.9% to 248.10p.