Ferrexpo (LSE:FXPO) shares are among those most impacted by the war in Ukraine. The commodity mining company has its operating base in central Ukraine, where it runs three iron-ore mines and an iron ore pellet production facility. Ferrexpo is the third largest exporter of iron ore pellets in the world.
So let’s take a closer look at why this stock has collapsed, today’s earnings update, and whether it could be right for my portfolio.
A tough year
Ferrexpo stock collapsed this year following Russia’s invasion of Ukraine. The Switzerland-headquartered firm immediately highlighted the impact of “operational and logistical constraints” in the weeks after the invasion.
The firm said logistics routes to markets in Europe via rail and barge remained open, while the Black Sea routes were immediately closed. Pivdennyi, the port used for sea-based exports, remains closed despite Ukraine maintaining control over the commercial facility near Odesa.
To make issues worse, the iron ore price has fallen significantly. Fresh Covid-19 outbreaks in China clouded demand prospects in the world’s top steel producer. PMI data from China this week highlighted the continuing production challenges.
But China is also threatening to centralise its procurement of iron. This isn’t the first time China has been poised to do this, but it’s certainly being seen as a real issue this year. The price of iron ore hit record highs of more than $210/tonne in June 2021, but fell as low as $100/tonne last month. It jumped above $120/tonne earlier this week.
H1 performance
On Wednesday, Ferrexpo published its financial report for the past six months, and the above challenges were clearly reflected on its performance. Revenues declined 31% to $936m as a result of lower production and tighter market conditions.
H1 post-tax profit declined 88% to $82m, reflecting an impairment of $254m during the period. The firm highlighted the impact of higher costs, lower production volumes, rising global inflation and energy prices.
However, there were some positives. Ferrexpo remains in a net cash position with $177m of cash and cash equivalents, with minimal debt (around $5m).
It’s also worth noting that the fall in production was perhaps less than might be expected for a company operating in a war zone. Total pellet production fell 14% year-on-year while sales fell 21%.
Would I buy Ferrexpo shares?
Until today’s update, Ferrexpo had a price-to-earnings ratio of around 1.1. That’s very cheap, but clearly a sign that something isn’t right.
But it all comes down to the conflict in Ukraine. If the war appeared to be nearing an end, it might be worth taking a risk on this stock. It certainly tempted me earlier on as I had assumed it might be over relatively quickly.
However, I can’t see it coming to an end any time soon. And therefore, I’m not buying this stock right now.
