Last close As at 05/08/2026
GBP0.81
▲ 2.40 (3.04%)
Market capitalisation
GBP211m
Research: Metals & Mining
Sylvania reported FY24 EPS of 2.7c against our expectation of 5.8c and down 85% on the prior year due to mainly a 35% lower PGM 4E basket price. In addition, the company suffered the effects of much lower platinum group metal (PGM) prices, a delayed recovery in production and elevated levels of expense. The results included more granularity on the Thaba joint venture (JV), including accounting treatment and the outlook to FY28. However, thanks to high chrome prices and a better understanding of the price that Sylvania will receive at mine gate, we have lifted our near-term JV forecasts. We have further incorporated management guidance around higher Sylvania Dump Operations (SDO) ZAR costs for FY25. We have cut our FY25 EPS forecast by 33.7% to 5.1c to allow for the higher costs but have increased our FY26 forecast by 6% to 10.7c, allowing for more aggressive chrome price assumptions and a normalisation of SDO costs. We forecast 8.9% EPS growth to 11.7c in FY27. We have cut our valuation by 5.7% to 105.8p/share due to ZAR appreciation, affecting US dollar cost forecasts.
Written by
Rene Hochreiter
Sylvania Platinum |
FY24 results |
Metals and mining |
25 September 2024 |
Share price performance
Business description
Next events
Analysts
Sylvania Platinum is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||||
Sylvania reported FY24 EPS of 2.7c against our expectation of 5.8c and down 85% on the prior year due to mainly a 35% lower PGM 4E basket price. In addition, the company suffered the effects of much lower platinum group metal (PGM) prices, a delayed recovery in production and elevated levels of expense. The results included more granularity on the Thaba joint venture (JV), including accounting treatment and the outlook to FY28. However, thanks to high chrome prices and a better understanding of the price that Sylvania will receive at mine gate, we have lifted our near-term JV forecasts. We have further incorporated management guidance around higher Sylvania Dump Operations (SDO) ZAR costs for FY25. We have cut our FY25 EPS forecast by 33.7% to 5.1c to allow for the higher costs but have increased our FY26 forecast by 6% to 10.7c, allowing for more aggressive chrome price assumptions and a normalisation of SDO costs. We forecast 8.9% EPS growth to 11.7c in FY27. We have cut our valuation by 5.7% to 105.8p/share due to ZAR appreciation, affecting US dollar cost forecasts.
Year end |
Revenue (US$m) |
PBT* |
EPS* |
DPS** |
P/E |
Yield |
06/24 |
81.7 |
13.5 |
2.7 |
3.0 |
22.7 |
6.5 |
06/25e |
104.3 |
18.2 |
5.1 |
2.0 |
11.8 |
4.3 |
06/26e |
140.9 |
39.4 |
10.7 |
4.5 |
5.6 |
9.9 |
06/27e |
146.9 |
43.7 |
11.7 |
5.7 |
5.2 |
12.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Forecasts exclusive of windfall dividends.
Temporary increase in ZAR cash costs
Sylvania experienced higher cash costs in FY24 due to inflationary pressure, a labour strike, a stronger rand versus the dollar and a temporary rise as a result of purchasing higher-grade external material for its Eastern operations. The latter has increased costs by 10%, a situation that will continue through FY25. We have incorporated these higher costs in our forecasts, which results in cutting our EPS forecast in FY25, but allowing for a normalisation from FY26.
Meaningful uplift in revenue forecast from FY26
Sylvania provided an update on the Thaba JV outlook, which has improved visibility. Due to current high chrome prices, it expects c 75% of the JV revenue to be earned from chrome production over the next four years, well ahead of initial expectations. This more than makes up for lower PGM prices. We now forecast revenue growth of 35% in FY26 once the JV comes into full production. This drives a 6% increase in our FY26 EPS and further growth of 8.9% in FY27.
Valuation: 105.8p/share, down on ZAR appreciation
Since our previous report, the rand has appreciated strongly against the US dollar and we have updated our valuation on the back of this. As a result, we have cut our SDO valuation by 7.8% to 75.1p/share. Our valuation of the Thaba JV is unchanged at 16.9p/share, with the higher chrome price impact offset by the stronger rand. Combined with an unchanged 13.8p/share valuation for the exploration assets, our valuation for Sylvania is down 5.7% at 105.8p/share.
Themes from the FY24 results
Sylvania reported EPS of 2.7c in FY24, which was 85% lower than the prior year and below our expectation of 5.8c. In our 14 August Q424 results note, we discussed the revenue pressure that Sylvania faced in FY24 due to a delay in the expected production recovery following a strike earlier in the year, as well as a much lower PGM basket price. While we also discussed higher-than-expected expenses, the FY24 results have provided further context, including a temporary element in the higher cost base.
In addition to the temporarily elevated cost base, other key themes from the FY24 results include revenue, interest income and tax impacts contributing to the earnings miss relative to our expectations, updates on the Thaba JV outlook and exploration assets, and ZAR appreciation over the past month. We consider these in turn.
Temporarily elevated costs
During the year, Sylvania temporarily purchased higher-grade external material for its Eastern operations, which contributed to a 10% increase in ZAR costs. This was due to ore from the host mines that supply run-of-mine (ROM) ore to the SDO being of low grade, which causes costs per ounce to increase and profitability to be compromised. To counter this, higher-grade, third-party dump material is sourced but comes with an associated purchase cost. Management continues to collaborate with the host mines in determining the preferred source of ROM and associated grades to sustain higher grades. This situation will persist during FY25, whereafter management expects the SDO ZAR cost base to normalise. We have updated our ZAR cost forecasts for FY25 on the back of this, which has negatively affected our EPS forecasts. We have adjusted our ZAR SDO cost base from FY26 onwards to allow for the expected reduction flagged by management, which has resulted in a 5% lower base than in our previous forecasts. The stronger ZAR (discussed below) has exacerbated the FY25 impact and moderated the FY26 impact.
Contributors to earnings miss
We updated our FY24 EPS expectations after the Q424 results, allowing for the production, basket price and costs impacts discussed in our last update note. The drivers of the company’s miss of our 5.8c forecast included lower actual revenue delivered (due to our overstatement of the sales adjustment for the full year), higher cash and administrative costs than we had forecast, lower than expected finance income and higher taxes (due to higher dividend withholding tax than expected). Much of the higher cash and administrative costs and lower-than-expected finance income impacts were due to incorrect modelling of the Thaba JV accounting, which we have corrected. The Thaba JV is accounted for using a proportionate consolidation approach.
Meaningful earnings upside from the Thaba JV
Sylvania provided an update on the outlook for the Thaba JV, which has improved visibility. Due to current high chrome prices, the company is expecting c 75% of JV revenue to be earned from chrome production over the next four years, well ahead of initial expectations. Recent chrome cost, insurance and freight prices have been as high as $300/tonne for South African producers, which could imply a price of $150/tonne or higher at mine gate for the Thaba JV. Such high chrome prices could more than make up for lower PGM prices.
We have increased our chrome price forecasts for the Thaba JV from $102/tonne to $143/tonne in the near term (until FY28), after which time we allow it to moderate to $115/tonne. We now forecast revenue growth of 35% for the group in FY26 once the JV comes into full production. This results in a 6% increase in our FY26 EPS for the group and further growth of 8.9% in FY27.
We have moderated the impact of our higher chrome price forecasts on the Thaba JV valuation by taking a more conservative view of the life of mine, with production falling off sharply after FY36.
Exploration asset update
Sylvania presented its Competent Person’s Report (CPR) on the Volspruit project south of Mokopane in the Limpopo Province of South Africa on 20 August following the mineral resource estimate (MRE) released in February 2024.
The rhodium content of the orebody is included in the Joint Ore Reserve Committee (JORC) compliant (2012) CPR. In summary, 28.24Mt of ore at a grade of 2.36 grams per tonne four-element PGM (g/t 4E) was declared, at a production rate of 1.8Mt per year, giving an internal rate of return of 17% at a basket price of $1,691/oz 4E.
At current PGM prices of around $1,200/oz 4E, the Volspruit exploration project is unlikely to be viable. We forecast higher PGM prices in FY25 and FY26.
At the Hacra project, an exploration target of 20–22.5Mt at 2.18–3.32g/t was set. There is insufficient information for an MRE and the targets are of a conceptual nature.
At the Aurora project, following the initial October 2022 MRE for the La Pucella target area, which represents c 12% of the potential total strike length of the Aurora project, reinterpretation of historical information has been completed. A future work programme will result in increased knowledge of the project’s entire strike length and increase the resources of the entire Aurora project. Future drilling needs will also be assessed, as well as more geophysical work and process test work.
We have maintained our valuation for Sylvania’s exploration assets at 13.8p/share, which is the book value at which the company carries these assets. We will reassess this when PGM prices recover and/or once the company releases further studies.
Strong ZAR appreciation
Since our last update note, the ZAR has appreciated strongly against the US dollar, with sterling also trending stronger. A stronger ZAR, if sustained, will have a negative impact on US dollar cash costs. At the same time, a weaker US dollar, if sustained, will have a detrimental impact on US dollar earnings and dividends in sterling. We use a constant currency approach for our forecasts and valuations for resource companies, and have rebased our Sylvania model for current spot exchange rates. As a result, our EPS forecasts have been negatively affected, which feeds through to lower valuations for Sylvania’s operations.
Valuation
In our 14 August update note, we lowered our EPS forecasts and adjusted our valuation for Sylvania downwards to 112.2p/share. On the back of the FY24 results, including further context around temporarily elevated costs, stronger near-term earnings for the Thaba JV and updated spot exchange rates, we have cut our FY25 EPS forecast by 33.7% from 7.7c to 5.1c, while lifting our FY26 EPS forecast by 6% from 10.1c to 10.7c. These changes have resulted in a 7.8% reduction in our SDO valuation from 81.5p/share to 75.1p/share.
As discussed above, the enhanced EPS forecast for FY26 is the result of stronger forecast Thaba JV earnings, which we have incorporated in our valuation. However, the positive impact of higher forecast chrome prices has been offset by the strong ZAR spot exchange rate, resulting in an unchanged valuation of 16.9p/share. Our exploration assets valuation remains unchanged at 13.8p/share. The net impact is a 5.7% reduction in our combined valuation to 105.8p/share.
Exhibit 1: Valuation downgrade on stronger ZAR
Current |
Previous |
Change |
|
Combined valuation (p/share) |
107.3 |
112.2 |
-4.4% |
SDO (p/share) |
76.7 |
81.5 |
-5.9% |
Exploration (p/share) |
13.8 |
13.8 |
0.0% |
Thaba JV (p/share) |
16.9 |
16.9 |
-0.3% |
FY25e EPS (c/share) |
5.1 |
7.7 |
-33.7% |
Implied P/E (x) |
20.7 |
14.6 |
|
FY26e EPS (c/share) |
10.7 |
10.1 |
6.0% |
Implied P/E (x) |
9.9 |
11.1 |
|
FY27e (c/share) |
11.7 |
||
Implied P/E (x) |
9.1 |
Source: Edison Investment Research
The implied forward P/E multiple of our new valuation has increased based on our explicit FY25 forecast relative to our previous valuation, but has reduced to 9.9x based on FY26 EPS and falls further to 9.1x based on our FY27 EPS forecast.
Exhibit 2: Financial summary
US$m |
2023 |
2024 |
2025e |
2026e |
2027e |
Year ending 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|
|
|
|
|
Revenue |
130.2 |
81.7 |
104.3 |
140.9 |
146.9 |
Cost of Sales |
(63.2) |
(69.0) |
(82.4) |
(93.2) |
(93.3) |
Royalties Tax |
(4.9) |
(1.4) |
(2.8) |
(5.7) |
(7.0) |
Gross Profit |
62.1 |
11.3 |
19.2 |
42.0 |
46.6 |
EBITDA |
67.9 |
12.3 |
20.5 |
45.1 |
49.6 |
Operating profit (before amort. and excepts.) |
61.8 |
7.4 |
14.3 |
37.0 |
41.4 |
Intangible Amortisation |
(4.1) |
(4.9) |
(6.2) |
(8.1) |
(8.2) |
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other Expenses |
(4.0) |
(4.2) |
(5.1) |
(5.3) |
(5.5) |
Operating Profit |
61.8 |
7.4 |
14.3 |
37.0 |
41.4 |
Net Interest |
5.2 |
6.1 |
3.9 |
2.4 |
2.3 |
Profit Before Tax (norm) |
67.0 |
13.5 |
18.2 |
39.4 |
43.7 |
Profit Before Tax (FRS 3) |
67.0 |
13.5 |
18.2 |
39.4 |
43.7 |
Tax |
(21.6) |
(6.5) |
(4.8) |
(11.4) |
(13.3) |
Profit After Tax (norm) |
45.4 |
7.0 |
13.4 |
28.0 |
30.5 |
Profit After Tax (FRS 3) |
45.4 |
7.0 |
13.4 |
28.0 |
30.5 |
Average Number of Shares Outstanding (m) |
266.6 |
262.6 |
261.6 |
261.6 |
261.6 |
EPS - normalised (c) |
17.0 |
2.7 |
5.1 |
10.7 |
11.7 |
EPS - normalised fully diluted (c) |
16.7 |
2.7 |
5.1 |
10.7 |
11.7 |
EPS - (IFRS) (c) |
16.7 |
2.7 |
5.1 |
10.7 |
11.7 |
Dividend per share* (p) |
8.0 |
3.0 |
2.0 |
4.5 |
5.7 |
Gross Margin (%) |
48% |
14% |
18% |
30% |
32% |
EBITDA Margin (%) |
51% |
15% |
20% |
32% |
34% |
Operating Margin (before GW and except.) (%) |
47% |
9% |
14% |
26% |
28% |
BALANCE SHEET |
|||||
Fixed Assets |
101.5 |
117.3 |
156.9 |
169.3 |
165.3 |
Intangible Assets |
46.5 |
47.7 |
48.1 |
48.1 |
48.1 |
Tangible Assets |
48.7 |
61.8 |
101.0 |
113.4 |
109.4 |
Investments |
6.4 |
7.8 |
7.8 |
7.8 |
7.8 |
Current Assets |
168.2 |
140.2 |
108.9 |
113.0 |
118.9 |
Stocks |
5.1 |
5.7 |
4.2 |
2.7 |
2.8 |
Debtors |
35.7 |
34.7 |
39.6 |
46.5 |
48.5 |
Cash |
124.2 |
97.8 |
63.1 |
61.8 |
65.6 |
Other |
3.3 |
2.0 |
2.0 |
2.0 |
2.0 |
Current Liabilities |
13.9 |
14.1 |
13.0 |
14.6 |
15.2 |
Creditors |
13.9 |
14.1 |
13.0 |
14.6 |
15.2 |
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Long Term Liabilities |
16.5 |
18.0 |
18.0 |
18.3 |
18.7 |
Long term borrowings |
0.4 |
0.5 |
0.5 |
0.5 |
0.5 |
Other long term liabilities |
16.2 |
17.5 |
17.5 |
17.9 |
18.2 |
Net Assets |
239.4 |
225.5 |
234.9 |
249.4 |
250.4 |
CASH FLOW |
|||||
Operating Cash Flow |
77.7 |
15.0 |
16.0 |
41.3 |
49.0 |
Net Interest |
5.1 |
6.0 |
4.1 |
2.7 |
2.6 |
Tax |
(19.8) |
(6.2) |
(4.8) |
(11.4) |
(13.3) |
Capex |
(14.5) |
(15.8) |
(43.5) |
(19.5) |
(4.9) |
Other investing activities |
0.0 |
0.1 |
0.0 |
0.0 |
0.0 |
Financing |
(10.6) |
(5.2) |
0.0 |
0.0 |
0.0 |
Dividends |
(35.5) |
(23.4) |
(9.5) |
(13.5) |
(29.5) |
Net Cash Flow |
6.6 |
(27.0) |
(37.6) |
(0.4) |
4.0 |
Opening net (debt)/cash |
121.3 |
124.2 |
97.8 |
63.1 |
61.8 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other |
(3.7) |
0.7 |
2.9 |
(1.0) |
(0.2) |
Closing net (debt)/cash |
124.2 |
97.8 |
63.1 |
61.8 |
65.6 |
Source: Company accounts, Edison Investment Research. Note: *Excludes windfall dividend.
|
|
Research: Industrials
Accsys will discontinue the Tricoya project in Hull, England, as it has not found a financial or strategic partner to finalise the construction of the plant. The project started in 2017 and was put on hold in November 2022 after several problems during construction. Accsys will write down the remaining book value of €20m and will need €4.5m for the discontinuation and winding up of the plant. Although this is a setback for the company’s strategy to boost Tricoya sales, Accsys will continue to supply Accoya material to produce Tricoya panels. Our discounted cash flow (DCF) comes in lower at €0.92 as we have taken out the option value for Hull, which is not fully compensated for by the absence of running costs for this plant.