From the other board...7 Sep 2020 14:02
Here's the Simon Thompson article from IC, courtesy of the other board...
Sylvania’s eye-watering cash generation Sylvania Platinum (SLP:63p), a cash-rich, fast-growing, low-cost South African producer and developer of platinum, palladium and rhodium, has delivered eye-catching annual results. Not even the loss of 10,000 ounces of output due to a temporary government imposed Covid-19 related shutdown failed to de-rail Sylvania. In fact, the company still delivered 69,000 ounces from its dump operations, just 3,000 ounces shy of the previous year’s record. Moreover, with rhodium and palladium prices up 165 per cent and 47 per cent in a tight market in the 12 months to 30 June 2020, the metals accounting for 12.5 per cent of 25.5 per cent of the overall basket, Sylvania’s basket price surged from $1,277 to $2,015 per ounce, or almost three times higher than Sylvania’s all-in costs of $713 per ounce. In turn, revenue increased by 62 per cent to $114m and cash profit soared by 130 per cent to $69.6m, highlighting the attractive operational gearing to rising metal prices. Cash generation was mightily impressive, too, hence why net funds increased from $21.8m to $55.9m (15.5p a share) after allowing for the repurchase of 5 per cent of the share capital and US$5.2m of capital expenditure. Even the Covid-19 crisis has had a silver lining. That’s because although rhodium auto-catalyst demand is forecast to fall 113,000 ounces this year due to a predicted 17 per cent fall in global car sales, according to German automotive industry body The Verband der Automobilindustrie, the market has actually tightened because of lost mining output and contraction of recycling volumes. This explains why the rhodium price is only 10 per cent shy of its pre-Covid-19 all-time high, the metal being two to three times more effective than platinum in an auto-catalyst, hence its appeal to car makers. Shareholders may be disappointed by a mere doubling of the dividend per share to 2 cents (1.6p), but the board plan to declare a ‘windfall metals dividend’ in the 2020/21 financial year which analysts at brokerage Liberum estimate at 3p a share. Liberum forecasts an additional 7.7p a share d on top, the total dividend being covered 1.7 times by forecast EPS of around 18.5p. The shares have quadrupled since I suggested buying, at 14.5p, in my 2018 Bargain Shares portfolio, and the risk remains to the upside. In fact, rated on a cash-adjusted PE ratio of 2.5 and offering a prospective dividend yield of 18 per cent they offer significant upside to my 100p target price. Buy.
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