It has paid dividends to buy in ahead of the full-year results from Aim-traded Sylvania Platinum (SLP:22.5p), a fast-growing and low-cost South African producer and developer of platinum group metals (PGMs) platinum, palladium and rhodium. In fact, the share price surged by 30 per cent after I previewed the results in mid-August (‘Profiting from Rhodium’s price surge’, 13 August 2018), and is now up 52 per cent since I included the shares, at 14.5p, in my 2018 Bargain Shares portfolio.
A key take for me is the 76,000 to 78,000 ounces (oz) production target for the new financial year, markedly higher than last year’s record output of 71,000 oz, and supportive of a sixth consecutive year of production growth. Moreover, with the rhodium price more than double where it was a year ago – Sylvania’s rhodium share of production is between two and three times that of its peers at 14 per cent – and revenues from by-products buoyed by higher prices for Iridium and Ruthenium (up 42 per cent and 255 per cent, respectively), then Sylvania continues to benefit from pricing tailwinds. Sylvania is also one of the lowest cost producers in the world – average basket price of $1,135 per oz was more than double the $543 per oz cash cost from its dumping operations – which is why both net revenues and net profits increased by almost a quarter to $62.8m and $11m, respectively.
2018 Bargain Shares portfolio performance | |||||
Company name | TIDM | Opening offer price on 02.02.18 (p) | Latest bid price on 28.08.18 (p) | Dividends (p) | Total return (%) |
Sylvania Platinum | SLP | 14.5 | 22 | 0 | 51.7 |
Parkmead | PMG | 37 | 55.6 | 0 | 50.3 |
PCF | PCF | 27 | 36 | 0.19 | 34.0 |
Titon | TON | 159.86 | 185 | 1.75 | 16.8 |
U and I Group | UAI | 205 | 221 | 15.5 | 15.4 |
Shore Capital | SGR | 213 | 240 | 5 | 15.0 |
Crystal Amber | CRS | 207.2 | 226 | 2.5 | 10.3 |
Conygar | CIC | 160 | 175 | 0 | 9.4 |
Record | REC | 43.3 | 41.1 | 1.65 | -1.3 |
Mpac | MPAC | 156 | 116 | 0 | -25.6 |
Average | 17.6 | ||||
Deutsche Bank FTSE All-Share tracker (XASX) | 427.3 | 427 | 16.54 | 3.8 | |
Source: London Stock Exchange share prices. |
The company is highly cash generative too; cash generated from operations was just shy of $23m before $4.5m negative working capital movements, slightly ahead of annual cash profits of $22.2m. The bumper cash flow enabled Sylvania to invest $6.3m in Lesedi, a PGM dump operation with an operational concentrator plant and 2.4m tonnes of tailings dump resources of a similar grade and recovery potential as Sylvania’s neighbouring Mooinooi dump operation; a further $7.6m on capital projects; and $1.4m on a share buyback programme. The board also declared a maiden dividend of 0.35p at a cash cost of $1m. They can afford to do so as the company still has net cash of $14m on its balance sheet.
Still only priced on a modest cash-adjusted PE ratio of 6.5, I feel a target price of 28p to 30p (equating to a cash-adjusted PE ratio of 8.5 for the year just ended) is a more reasonable valuation. Buy.
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