Last close As at 05/08/2026
GBP1.02
▲ −2.10 (−2.02%)
Market capitalisation
GBP2,539m
Research: Metals & Mining
This morning, Pan African announced that it may have been in technical breach of the net asset test when it paid out dividends to shareholders in the five years from FY19–23 and also when it instigated its share buyback programme in 2022. As attested to by the fact that it took five years to be noticed, the apparent breach arises from the nexus of an arcane bit of legislation and a curious distinction between the presentation currency of the group (the US dollar) and its functional currency (the South African rand) and the effect of the depreciation of the latter against the former on the distributable versus undistributable reserves of Pan African Resources. Fortunately, there is a relatively simple remedy that involves a court sanctioned capital reduction process via a clever reserve juggling act. There will be no change to the number of Pan African shares in issue. However, it will require shareholder assent, which is the reason for PAF’s announcement. We believe it is in shareholders’ interest to vote in favour of these resolutions at its forthcoming general meeting on 10 June.
Pan African Resources |
An accounting storm in a legal teacup |
Capital reduction proposal |
Metals and mining |
24 May 2024 |
Share price performance
Business description
Next events
Analyst
Pan African Resources is a research client of Edison Investment Research Limited |
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This morning, Pan African announced that it may have been in technical breach of the net asset test when it paid out dividends to shareholders in the five years from FY19–23 and also when it instigated its share buyback programme in 2022. As attested to by the fact that it took five years to be noticed, the apparent breach arises from the nexus of an arcane bit of legislation and a curious distinction between the presentation currency of the group (the US dollar) and its functional currency (the South African rand) and the effect of the depreciation of the latter against the former on the distributable versus undistributable reserves of Pan African Resources. Fortunately, there is a relatively simple remedy that involves a court sanctioned capital reduction process via a clever reserve juggling act. There will be no change to the number of Pan African shares in issue. However, it will require shareholder assent, which is the reason for PAF’s announcement. We believe it is in shareholders’ interest to vote in favour of these resolutions at its forthcoming general meeting on 10 June.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/22 |
376.4 |
117.2 |
4.44 |
1.04 |
7.1 |
3.3 |
06/23 |
321.6 |
92.9 |
3.54 |
0.95 |
8.9 |
3.0 |
06/24e |
390.3 |
141.7 |
5.73 |
0.99 |
5.5 |
3.1 |
06/25e |
420.8 |
162.4 |
6.28 |
0.98 |
5.0 |
3.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Section 831 of the Companies Act 2006
The capital reduction is expected to be a formality and will have the effect of remedying the NAV test and allowing Pan African to pay dividends in future. It will also relieve and indemnify all parties from any liability connected with the breaches. While Edison would not wish to overtly criticise the Companies Act 2006 in general, we would venture to suggest that this interpretation of the NAV test is unlikely to have been intended to be applied to a company of Pan African’s profile (ie mature with foreign assets), indebtedness (not much) or profitability (positive).
Valuation: Nosing in towards 40p
In the light of the above, Edison’s core (absolute) valuation of Pan African remains unchanged at 48.08c/share (38.30p), based on projects either sanctioned or already in production. This valuation rises by a further 22.17–27.19c if other assets (eg Egoli and the Soweto cluster) are also taken into account. Alternatively, if PAF’s historical average price to normalised headline earnings per share (HEPS) ratio of 8.4x in the period FY10–23 is applied to our FY24 and FY25 forecasts, it implies a value of 38.30p in FY24, followed by one of 41.94p in FY25. In the meantime, PAF remains cheaper than its principal London- and South African-listed gold mining peers on 66% of commonly used valuation measures, which collectively imply a valuation for PAF of 63.21p based on our year one EPS estimate and one of 48.06p based on our year two EPS estimate.
Exhibit 1: Financial summary
US$'000s |
2022 |
2023 |
2024e |
2025e |
||
Year end 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
376,371 |
321,606 |
390,323 |
420,772 |
Cost of sales |
(226,445) |
(198,790) |
(208,987) |
(209,567) |
||
Gross profit |
149,926 |
122,816 |
181,336 |
211,204 |
||
EBITDA |
|
|
147,830 |
121,853 |
177,634 |
206,608 |
Operating profit (before amort. and excepts.) |
|
|
121,402 |
101,454 |
155,720 |
170,820 |
Intangible amortisation |
0 |
0 |
0 |
0 |
||
Exceptionals |
(10,295) |
(7,347) |
(30,951) |
(7,908) |
||
Other |
0 |
0 |
0 |
0 |
||
Operating profit |
111,107 |
94,107 |
124,768 |
162,913 |
||
Net interest |
(4,231) |
(8,553) |
(14,035) |
(8,446) |
||
Profit Before Tax (norm) |
|
|
117,171 |
92,901 |
141,685 |
162,374 |
Profit before tax (FRS 3) |
|
|
106,876 |
85,554 |
110,734 |
154,467 |
Tax |
(31,924) |
(24,817) |
(32,068) |
(42,093) |
||
Profit after tax (norm) |
85,247 |
68,084 |
109,617 |
120,282 |
||
Profit after tax (FRS 3) |
74,952 |
60,737 |
78,666 |
112,374 |
||
Average Number of Shares Outstanding (m) |
1,926.1 |
1,916.5 |
1,916.5 |
1,916.5 |
||
EPS - normalised (c) |
|
|
4.44 |
3.54 |
5.73 |
6.28 |
EPS - FRS 3 (c) |
|
|
3.90 |
3.19 |
4.12 |
5.86 |
Dividend per share (c) |
1.04 |
0.95 |
0.99 |
0.98 |
||
Gross margin (%) |
39.8 |
38.2 |
46.5 |
50.2 |
||
EBITDA margin (%) |
39.3 |
37.9 |
45.5 |
49.1 |
||
Operating margin (before GW and except.) (%) |
32.3 |
31.5 |
39.9 |
40.6 |
||
BALANCE SHEET |
||||||
Fixed assets |
|
|
401,139 |
439,676 |
571,678 |
607,425 |
Intangible assets |
44,210 |
44,429 |
46,612 |
48,792 |
||
Tangible assets |
355,802 |
395,247 |
525,065 |
558,633 |
||
Investments |
1,127 |
0 |
0 |
0 |
||
Current assets |
|
|
55,953 |
61,263 |
49,885 |
120,292 |
Stocks |
9,977 |
9,567 |
13,011 |
14,036 |
||
Debtors |
17,546 |
15,182 |
27,804 |
29,994 |
||
Cash |
26,993 |
34,771 |
7,327 |
74,519 |
||
Current liabilities |
|
|
(58,989) |
(77,386) |
(93,144) |
(111,830) |
Creditors |
(57,117) |
(65,884) |
(81,642) |
(104,794) |
||
Short-term borrowings |
(1,872) |
(11,502) |
(11,502) |
(7,036) |
||
Long-term liabilities |
|
|
(103,494) |
(128,957) |
(173,986) |
(167,909) |
Long-term borrowings |
(37,088) |
(45,334) |
(89,670) |
(82,392) |
||
Other long-term liabilities |
(66,406) |
(83,623) |
(84,316) |
(85,517) |
||
Net assets |
|
|
294,609 |
294,596 |
354,433 |
447,978 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
142,879 |
132,941 |
110,250 |
188,325 |
Net Interest |
(2,794) |
(5,121) |
(14,035) |
(8,446) |
||
Tax |
(8,520) |
(7,722) |
(3,543) |
(17,857) |
||
Capex |
(81,951) |
(109,952) |
(153,916) |
(71,535) |
||
Acquisitions/disposals |
563 |
(2,779) |
0 |
0 |
||
Financing |
(3,222) |
0 |
(0) |
(0) |
||
Dividends |
(21,559) |
(19,975) |
(21,200) |
(18,829) |
||
Net cash flow |
25,396 |
(12,608) |
(82,444) |
71,658 |
||
Opening net debt/(cash) |
|
|
23,553 |
11,967 |
22,065 |
93,844 |
Exchange rate movements |
(4,401) |
(4,481) |
0 |
0 |
||
Other |
(9,409) |
6,991 |
10,664 |
7,277 |
||
Closing net debt/(cash) |
|
|
11,967 |
22,065 |
93,844 |
14,909 |
Source: company accounts, Edison Investment Research. Note: *2,222.9m shares in issue, of which 306.4m are held in treasury, such that a net 1,916.5m are in issue post-consolidation.
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Research: Healthcare
Cereno Scientific’s Q124 results provided a financial update and recapped the company’s clinical plans and progress. The Phase II trial for lead asset CS1 (pulmonary arterial hypertension, PAH) remains on track for a Q324 readout and we expect the Expanded Access Program approved by the FDA in January 2024 will help Cereno build a more robust data package for the subsequent Phase IIb/III trial. Additionally, the clinical trial application (CTA) submission for CS014 to the EMA in April 2024 brings a second asset to the clinic, bolstering the company’s clinical pipeline. We believe Cereno’s liquidity, post the SEK73.6m cash injection from the warrants exercise announced in March and assuming drawdown of the remaining SEK45m debt facility, provides operational headroom through Q225, ex-debt repayments. Our valuation slightly adjusts to SEK2.46bn from SEK2.32bn, previously, but declines to SEK8.8, from SEK9.9, on a per share basis with the higher share count post warrant conversion.