Ferrexpo margins to hit their high-water mark in 2018, Credit Suisse says

Credit Suisse boosted its target price for shares of iron ore miner Ferrexpo by well over a third on the back of the recovery in prices seen over the past year and after the pellet premium surprised to the upside.

More specifically, they lifted their target from 247.64p to 340p.

As a direct consequence of the above, they went on to explain, its balance sheet leveraged had rapidly declined and their refinancing concerns were a thing of the past.

However, they expected 2018 to be the high water mark for the outfit's margins and given that its valuation was not at an attractive enough discount relative to that of its major peers, they opted to stick by a 'neutral' recommendation for the shares.

Commenting on that surprise rise in the pellet premium, the Swiss broker said it was due to supply constraints in pellets and heightened demand for higher grade pellets on the back of a stronger steel market.

Vale's recently announced 2018 contract premiums of about $60 a tonne should allow Ferrexpo to obtain a similar premium through the year, Credit Suisse said.

But forecasts for new supplies to come on-line meant the premium was seen falling from $55 a tonne in 2018 to $45 a tonne in 2019 and then $35 a tonne by 2020.