FTSE 250 iron ore miner Ferrexpo (LSE:FXPO) has fallen on pretty hard times recently, with its share price dropping 31% in a period of two weeks following the news of a disputed relationship with a Ukrainian charity.
The company’s auditor Deloitte heaped pressure on the shares after resigning its relationship with Ferrexpo following an investigation into its CEO Kostyantin Zhevago’s relationship with a charity called Blooming Land.
However, Ferrexpo has come out fighting in relation to the issue, accusing Deloitte of quitting prematurely and for “innocuous” reasons.
So where does that leave the future of the Ferrexpo share price? Is this the first step to uncovering more uncomfortable relationships or merely a sideshow that presents a great buying opportunity?
No smoke without a fire
Clearly the whole situation doesn’t look good for the FTSE 250 company. It delayed its annual results twice in order to conduct a review of the $33.5m in payments made to Blooming Land, eventually concluding that the charity is not related to the group or any of its executives.
Deloitte obviously wasn’t convinced, and its stance is hard to argue with considering the last-minute results scrambling and a lack of a full independent investigation into the payments.
However, it must be noted from Deloitte’s statement that rather than alleging that Zhevago or the Ferrexpo board have any link to the charity, it simply states that it was unable to discount that conclusion.
It is not immediately clear what Zhevago or any other board member would stand to gain as a result of any misappropriation of funds, which makes me think that the fall in share price may be a little overdone.
That said, buying Ferrexpo at this stage would be one for those investors with a high appetite for risk.
Buying opportunity
Yet the miner has a lot of factors going in its favour. It’s one of the few stocks listed on the FTSE 250 with little to no exposure to the UK’s departure from the EU with most of its income coming in US dollars.
When its full-year results eventually arrived on 23 April, revenue was strong, with a 6.4% rise to $1.3bn compared to 2017, despite lower net profits for the year of $335m.
Production remained steady and commenting on the remainder of 2019, the company said prices of its iron pellets were to remain high for the rest of the year.
Ferrexpo has traditionally been known as a high dividend stock and announced a dividend of 23.1 cents per share, 40% higher year-on-year, and the improvement here suggests that the company is in a strong position financially going forward .
Considering the financials, dividends available and the potential value of the shares following the crash, I believe it could represent a buying opportunity for investors looking for a stock with a little more risk built in. Ultimately though, it boils down to whether you believe there are any further unsavoury details to emerge about the Blooming Land relationship.
Only time will tell…
