Inflation continues to exacerbate the cost of living crisis. As such, I’m interested in this FTSE 250 stock, which could provide some passive income with its high dividend yield. Down 40% since Russia invaded Ukraine, the current Ferrexpo (LSE: FXPO) share price may have the potential to rebound and earn me a fortune as well.
Iron curtain
The silver lining in the ongoing war for Ferrexpo is that it’s located in central Ukraine. Despite being stationed east of the Dnieper River, Ferrexpo’s facilities haven’t suffered any direct damage from Russian forces, allowing it to continue running its operations.
Having said that, logistical disruptions have impacted the company’s exports. In its most recent operations update, Ferrexpo mentioned that it decreased its commercial production. Ukraine’s Black Sea ports remain closed due to Russian presence in the south. As a result, the FTSE 250 firm has had to divert all its European shipments via Ukraine’s railway network and barging operations.
However, recent Russian airstrikes have damaged Ukraine’s railway and infrastructure in the south west. This has reduced Ferrexpo’s ability to utilise its barging operations to serve its European customers. Nevertheless, the group is in advanced discussions with additional port operators in central Europe for seaborne exports.
As flexible as wrought iron
Due to supply chain disruptions, the iron pellet producer reported a 0.4m tonne increase in iron ore inventories in May. Although the downturn in production hasn’t resonated well with shareholders, I believe this to be a masterclass in operating efficiency, as Ferrexpo is protecting its bottom line from unnecessary costs.
Management have also reiterated that production is expected to resume at peak capacity once damaged infrastructure is reopened, an alternative logistics route is agreed, and Ukraine’s Black Sea ports resume activities.
On track to £3.30?
I have no doubt that Ferrexpo has a long and treacherous road ahead. Analysts have set a price target of £3.30, but the firm faces strong political and economic headwinds. Apart from the ongoing war, a recession in Europe and America is within the realms of possibility. If this were to happen, it would negatively impact industrial production, affecting Ferrexpo’s top line.
On the flip side, there are also a couple of catalysts that could send the FTSE 250 stock flying. Firstly, the firm sees excess demand from Europe after countries imposed sanctions on Russia. Considering Europe accounted for more than half of Ferrexpo’s revenue in 2021, this could be a huge tailwind for Ferrexpo once it resolves its logistical issues. Secondly, iron ore prices could increase if China’s economy continues its recovery. With the group’s Wave 1 Expansion also on hold, its ability to produce 25% more pellets could boost Ferrexpo’s numbers if there’s sufficient demand.
Furthermore, the board recently reinstated its dividend, attracting dividend investors back into the stock. Its shares are going ex-dividend later this week at 6.60p per share. So, this could be an opportunity for me to earn some passive income.
Nonetheless, despite a potential 115% return, the geopolitical implications remain too ambiguous for me to have a long-term position in Ferrexpo. Instead, I’ll be looking to purchase other shares that could benefit my portfolio in this stock market crash.
