Sylvania Platinum Limited (LON: SLP) 

Sylvania Platinum Limited (LON: SLP) is an FTSE AIM All-Share Index listed Company, which is a producer of platinum group metals (PGMs), including platinum, palladium, and rhodium. The core business of Sylvania Platinum is the retreatment of PGM bearing chrome tailings material. It holds mining rights for several PGM projects on the Northern Limb of the Bushveld Igneous Complex.

Recent trend of dividend payments: SLP will pay a final dividend of 4.00 pence per share on 03 December 2021, while the ex-dividend date was 28 October 2021. 

Growth Prospects

• Efficient Cost Management: SLP produces low-cost PGMs with low-risk exposure. The Company identifies projects that have a minimum financial and operational risk with a potential LP high margin. SLP has a primary objective to maintain a regular stream of income to shareholders by generating generous shareholder returns.
• Strong Cash Reserves: SLP had maintained adequate cash reserves to fund capital expansion and process optimisation projects. Also, the Company aimed to upgrade the exploration and evaluation assets and return value to all stakeholders.
• New Tailings Dam Facility: SLP remained on track to complete the construction of the new tailings dam facility at Lesedi by Q3 FY21. Moreover, the projects at Lesedi and Tweefontein would begin production as planned during the 2023 calendar year.
• Record Performance by Tweefontein: The Company had achieved a higher throughput rate from Tweefontein, which set a new monthly SDO (“Sylvania dump operations”) record of 2,209 production ounces during September 2021 and would carry the positive momentum to mitigate the impact of Lesedi's lower production.

 

Key Risks

• Rise in Interest Rates: New Zealand came up with a second interest rate hike in the last two months. Moreover, rising inflation worldwide had put pressure on several Central Banks as they struggled to curb it.
• Operational Halt: The temporary suspension of operations at Lesedi mine had adversely impacted the production levels during Q1 FY22.
• Significant Downtrends: SLP had demonstrated a substantial decline in the top-line revenue and bottom-line profitability during Q1 FY22.
• Federal Tapering: The expected Federal tapering at the pace of USD 15 billion per month starting later this month may adversely impact the equity markets.
• Surge in UK Inflation: The UK inflation reached a 10-years high as it surged by around 4.2% for the 12 months ended October 2021. It may cause a sooner-than-expected interest hike.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Sylvania Platinum Limited.

Africa Asia Capital, Ltd. is the most significant shareholder as it holds nearly 30.00 million shares as of 30 September 2021. 

Q1 FY22 Financial Highlights (for three months ended 30 September 2021, as of 26 October 2021)

(Source: Company result)

• Top-Line Business: The Company’s top-line revenue got adversely impacted by a decrease in gross PGM basket price as it dropped from USD 48.40 million during Q4 FY21 to USD 29.80 million for Q1 FY22.
• Decent Profitability: The Company had reported a decent net profit of USD 8.60 million for Q1 FY22.
• Cash Balance: SLP had strengthened the balance sheet by raising the cash balance from USD 106.1 million as of 30 June 2021 to USD 132.7 million as of 30 September 2021.

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 24 November 2021, at 08:18 AM GMT, SLP’s shares were trading at GBX 88.25, down by around 0.84% from the previous day closing price. Stock 52-week High and Low were 150.00 and GBX 72.00, respectively.

From a technical perspective, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price. Moreover, a 14-days RSI of ~31.29 suggests oversold territory. Hence, there could be an uptick in the stock price.

Over the last two years, SLP’s stock price has delivered a positive return of ~141.03%, and it has outperformed the FTSE All-Share Industrial Metals index (benchmark sector) with a return of around 77.40% and FTSE AIM All-Share index (benchmark index) with a return of approximately 32.70%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

SLP had several operational growth catalysts which would enhance revenue streams over the medium term. The execution of the MF2 project at Lesedi would remain on track to start contributing towards production from early next year.  SLP demonstrated strong performance in FY21 with a promising PGM price environment. For FY22, SLP has kept the annual production target of 70,000 4E PGM ounces. SLP may show sizeable correction because of several factors such as rising inflation, increasing bond yields, an economic slowdown in China, and the Evergrande fiasco. Thus, it would be advisable for the clients to take a reasonable position on this Company as per their risk appetite.

Considering the decent operational progress, robust financial performance during FY21, decent dividend yield, increased production prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Sylvania Platinum Limited at the current market price of GBX 88.25 (as on 24 November 2021 at 08:18 AM GMT), with lower-double digit upside potential based on 4.26x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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