Key points
- Between 2016 and 2020, Ferrexpo had a compounding annual EPS growth rate of 26.3%
- The company recently approved an interim dividend of ¢6.6 per share
- Military action in Ukraine, where the firm operates mines, caused a 36% share price fall in the past week
Ferrexpo (LSE: FXPO) produces and manufactures iron ore pellets for use in the steel industry. With strong underlying results, I think the company could be a good long-term investment. However, recent hostilities in Ukraine, where the firm operates, have made me think twice. Is the current Ferrexpo share price attractive given the situation at the moment? It is currently trading at 156.8p, down 50% in the past year. Let’s take a closer look.
Strong historical results and the Ferrexpo share price
Between the 2016 and 2020 calendar years, earnings per share (EPS) increased from ¢33.6 to ¢108.1. This demonstrates significant earnings growth over the period. Furthermore, by my calculations the company has a compounding annual EPS growth rate of 26.3%. This is both strong and consistent.
In addition, revenue for the same period rose from $986.33m to over $1.7bn. As a potential investor, I view this ability to generate and improve revenue as a big positive. In addition, in December 2021 the firm approved an interim dividend of ¢6.6 per share. This also demonstrates the financial strength of the business.
In a recent production update for the three months to 31 December 2021, the business stated that its year-on-year iron ore production was basically flat. Compared with the previous quarter, however, production rose 18%. Furthermore, investment bank Liberum labelled Ferrexpo as a leader in its peer group because of its increasing expansion into copper production. This precious metal is critical to moves to decarbonise, like electric vehicles.
The impact of recent events
The recent Russian invasion of Ukraine caused panic among investors, because the company operates iron ore mines in Ukraine itself. In the past week, the Ferrexpo share price has fallen 36%. The firm issued two operational updates, stating that mining activities were still ongoing, but that the safety of the workforce is paramount.
It is possible, however, that mining activities could stop if the fighting intensifies. Furthermore, the Ukrainian government has suspended rail transportation, meaning that the company could struggle to transport the iron ore it mines. This could have a devastating impact on the firm’s ability to meet demand.
Overall, Ferrexpo has a track record of strong results. It is solely down to the military situation that it faces an unpredictable time ahead. Much depends on the length of this war. If recent talks between Ukraine and Russia on the Belorussian border bring peace, I suspect the Ferrexpo share price will increase. In that case, mining operations and transport will both run smoothly. I will hold off purchasing shares, however, and wait to see what the military situation brings, while primarily hoping for a swift end to conflict on a purely human level. I won’t rule out buying shares in the future.
