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Ferrexpo (LSE: FXPO), the FTSE 250 iron ore producer, has seen its share price collapse by over 53% so far in 2024. An ongoing suspension of VAT refunds in Ukraine — it’s key operating region — has threatened its liquidity. Subsequently, it’s been forced to reduce its production by 25%.
The share price tumbled in March after it announced a surprise loss in its final results for 2024. Yet despite the steep fall, the company’s underlying performance has not been as dire as the market reaction might suggest.
The question for investors now is whether this represents a buying opportunity — or simply a value trap.
Signs of improvement
Ferrexpo reported a £39.17m loss for its latest financial year. While this headline figure may seem discouraging, it came in 16.6% above earnings expectations, reflecting stronger-than-anticipated operational efficiency. Notably, the company’s net margin improved significantly — from -13% to -5.36% — suggesting better cost control and a potential turnaround in progress.
Another encouraging sign is the company’s solid balance sheet. It carries just £4m in debt while boasting £84.5m in cash reserves. This low leverage provides a critical buffer during challenging periods, particularly in the cyclical mining sector. In contrast to many heavily indebted peers, the miner has the financial flexibility to withstand further volatility in iron ore prices.
From a valuation perspective, the stock appears attractively priced. Its price-to-sales (P/S) ratio stands at just 0.85, well below the market average. This could signal an undervalued stock, particularly if margins continue to improve. Additionally, analysts’ average 12-month target price is 78.8p, representing a 58.3% increase from current levels.
A sombre outlook for 2025
Despite improvements, the outlook for 2025 remains uncertain. Analysts expect both earnings and revenue to decline further in 2025, reflecting weaker iron ore demand and logistical challenges. Any recovery in the share price is therefore likely to be gradual and dependent on stabilisation in commodity markets.
Adding to that are several risks to consider, such as volatile iron ore prices. These fluctuate based on demand from China, construction activity, and broader economic cycles. Miners like Ferrexpo are also exposed to unique operational risks such as production issues, safety concerns, and high fixed operating costs. These make it difficult to forecast earnings and provide accurate guidance.
In addition, the company operates in Ukraine, a region still facing considerable geopolitical uncertainty. Disruptions to transport infrastructure, export routes, and local supply chains remain a persistent concern. These issues are compounded by increasing scrutiny over its environmental impact, potentially ramping up future compliance costs.
A high-risk, high-reward prospect
Ferrexpo’s deep share price decline may have created an opportunity for contrarian investors willing to tolerate elevated risk. Its improving margins, strong balance sheet, and low valuation metrics make a compelling case for long-term recovery potential. However, with earnings expected to fall further in 2025 and significant sectoral risks still in play, caution is warranted.
For those with a high risk tolerance and a long-term investment horizon, it may be worth watching closely – but it is far from a sure bet. Until there are stronger signs of a resolution to the conflict in Ukraine, I don’t plan to buy the stock.
