Iron ore miner Ferrexpo (LSE: FXPO) has seen an almost 7% fall in share price so far today. On the face of it, this is confusing, considering that it delivered a great set of results today.
Ferrexpo’s results impress
Its revenues rose by 74% for the first half of 2021 and its net profit is up a whole 165%. Its cash position is strong. And the company’s dividends have increased by a big 200% from the same time last year. With a dividend of around 28p, the company’s yield is at a pretty healthy 6.1%. If it pays another dividend and its share price stays weak, dividends for the full year could be most rewarding.
Cautious outlook
But that is a big if. Ferrexpo’s outlook is cautious. It attributes its performance so far to expansionary fiscal policies. However, it expects them to ease in the second half of 2021. This will reduce both the demand for and price of iron ore. Signs of this are already visible in both iron ore price forecasts and the pricing of futures contracts.
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Also, its mining and processing is based in Ukraine, which is sensitive to geopolitical tensions. Ferrexpo is also diffident about the stability of the country’s legal framework, which makes its tax position vulnerable.
I think both concerns have much weight to them. Moreover, the Ferrexpo share price is also still trading close to its all-time high of around 500p seen around three months ago. This could suggest that the risks to the FTSE 250 company are not adequately priced in.
The upside to the FTSE 250 stock
At the same time, I just cannot overlook the fact that it is among the cheapest stocks around. Its price-to-earnings (P/E) ratio is at 5.6 as per my calculations based on the latest data. To me, this says that the risks are indeed priced in. Otherwise its share price would have been higher and its P/E closer to that of other industrial miners.
Besides this, not everyone agrees that the iron ore bull market is winding down. Even if China’s fiscal measures are scaled back, a demand increase from the rest of the world cannot be ruled out. After all, the economy is just getting back up on its feet.
Also, even if Ferrexpo’s share price increases are slower, but it earns me a huge dividend yield over the next year, I am not complaining.
What I’d do now
That said, geopolitics can be a genuine threat. Closer home, we have seen the impact of Brexit-related developments on the stock markets, for instance. The case of Ferrexpo may be no different. I will be on the lookout for developments in Ukraine and how they can impact it, but in the overall scheme of things, the stock is still a buy for me.
