Broker snap: Ferrexpo a pure iron ore play

20th Apr 2010 13:38

Morgan Stanley has initiated coverage of Ferrexpo with an 'overweight' recommendation for the Ukraine-based miner.The miner's London listing offers investors an opportunity to gain exposure to iron ore prices, Morgan Stanley argues. Vertical integration allows Ferrexpo to process all the iron ore it mines and convert all production into pellets, which in turn improves operating margins. "Ferrexpo also enjoys a landed cost and value-in-use advantage compared to international majors, due to its freight differential (proximity to Central and Eastern Europe) and the quality of its pellet product," the team at Morgan Stanley (MS) notes.The broker has a price target of 406p for the shares. "While the stock is pricing in c$55/t [$55 per tonne] normalized iron ore price (above our long-term estimate of $53.5/t), at a not unrealistic $80/t long-term iron price we estimate the share price could almost double," MS suggests.