Pan African Resources — Dividend yield trending higher than P/E ratio

Pan African Resources (AIM: PAF)

Last close As at 20/05/2024

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Research: Metals & Mining

Pan African Resources — Dividend yield trending higher than P/E ratio

On 7 August, Pan African Resources (PAF) announced FY23 production of 175,209oz, which was within 0.1% of its guidance of 175,000oz on 26 May. It also indicated all-in sustaining costs (AISC) of US$1,325–1,350/oz (at ZAR17.77/US$), reiterated output guidance of 178–190koz for FY24 and reported net senior debt of US$18.9m as at end-June (cf US$49.9m as at end-H123). In response to the announcement, we have reduced our FY23 normalised HEPS forecast for PAF by 8.3%, from 3.82c/share to 3.50c/share to reflect dollar costs, which were stickier at higher levels than we had hoped. However, our forecast remains above the market consensus. Moreover, our life-of-mine valuation of the company remains almost completely unchanged at 34.24c/share (see Exhibit 7 for full explanation), notwithstanding recent rand strength.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Pan African Resources

Dividend yield trending higher than P/E ratio

FY23 production update

Metals and mining

18 August 2023

Price

12.80p

Market cap

£245m

ZAR23.6963/£, ZAR18.6022/US$, US$1.2739/£

Net debt (US$m) at end-December 2022

53.7

Shares in issue

(effective 1,916.5m postconsolidation, excluding treasury)

2,222.9m

Free float

85%

Code

PAF

Primary exchange

AIM/JSE

Secondary exchanges

Level 1 ADR, OTCQX Best Market and A2X

Share price performance

%

1m

3m

12m

Abs

(4.6)

(27.5)

(35.5)

Rel (local)

(3.5)

(23.6)

(33.0)

52-week high/low

20.2p

12.0p

Business description

Pan African Resources has four major producing precious metals assets in South Africa: Barberton (target output 95koz Au pa), the Barberton Tailings Retreatment Project, or BTRP (20koz), Elikhulu (55koz) and Evander underground, incorporating Egoli (currently 30koz, rising to >100koz).

Next events

FY23 results

13 September 2023

AGM

November 2023

Ex-dividend date

November 2023

FY23 dividend payment

December 2023

Analyst

Lord Ashbourne

+44 (0)20 3077 5700

Pan African Resources is a research client of Edison Investment Research Limited

On 7 August, Pan African Resources (PAF) announced FY23 production of 175,209oz, which was within 0.1% of its guidance of 175,000oz on 26 May. It also indicated all-in sustaining costs (AISC) of US$1,325–1,350/oz (at ZAR17.77/US$), reiterated output guidance of 178–190koz for FY24 and reported net senior debt of US$18.9m as at end-June (cf US$49.9m as at end-H123). In response to the announcement, we have reduced our FY23 normalised HEPS forecast for PAF by 8.3%, from 3.82c/share to 3.50c/share to reflect dollar costs, which were stickier at higher levels than we had hoped. However, our forecast remains above the market consensus. Moreover, our life-of-mine valuation of the company remains almost completely unchanged at 34.24c/share (see Exhibit 7 for full explanation), notwithstanding recent rand strength.

Year

end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/21

368.9

117.7

4.54

1.27

3.6

7.8

06/22

376.4

117.2

4.44

1.04

3.7

6.4

06/23e

318.9

88.6

3.50

0.95

4.7

5.9

06/24e

335.8

106.6

4.86

0.97

3.4

5.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Mintails on track to add materially to production

PAF is aggressively rolling out renewable energy plans in order to mitigate the operational impact of electricity supply disruptions. In the meantime, on 1 August, it announced that all conditions precedent to its ZAR1.3bn (c US$69.9m at prevailing forex rates) senior debt facility, designated for the funding of the group’s Mintails project, had been fulfilled and that the South African Department of Mineral Resources and Energy has also granted PAF an environmental authorisation for the project in terms of regulation 24(1)(a) of the Environmental Impact Assessment Regulations, 2014. With Mintails still targeting commissioning in H125, we are still anticipating a material increase in group production in FY25 towards 250koz.

Valuation: Almost unchanged, closer to 30p than 20p

Notwithstanding our earnings forecast reduction, PAF remains cheap relative to both its historical trading record and its peers. Our core (absolute) valuation of the company remains almost unchanged at 34.24c (cf 34.17c previously), based on projects either sanctioned or already in production, notwithstanding the recent rise in the value of the rand against the US dollar. Moreover, this valuation rises by a further 17.47–22.49c (17.06–22.08c previously) once other assets (eg Egoli) are also taken into account. Alternatively, if PAF’s historical average price to normalised HEPS ratio of 8.6x in the period FY10–22 is applied to our FY23 and FY24 forecasts, it implies a share price of 23.51p in FY23 (cf 26.56p previously), followed by one of 32.69p in FY24. As such, PAF’s current share price of 12.80p could be interpreted as discounting normalised HEPS falling to 1.90c per share in FY23 (cf 3.50c/share forecast). In the meantime, PAF remains cheaper than its principal London- and South African-listed gold mining peers on at least 77% of commonly used valuation measures, which collectively imply a share price of 28.47p in FY23 and one of 32.30p in FY24. Finally, we estimate that PAF still has the 10th highest dividend yield of any precious metals mining company, globally.

H223 and FY23 operational results

On 7 August, PAF announced its production for FY23, which, to a large extent, bore out its estimates of 26 May and are compared in the table below in addition to Edison’s calculation of the production thereby implied for H223:

Exhibit 1: PAF production, H220–H223e (oz)

Operation

H220

H121

H221

H122

H222

H123

H223e

(prior)

H223

FY23

FY23e

(prior)

Change

(%)

Change

(oz)

Barberton UG

31,392

42,350

42,476

39,991

35,747

32,022

31,978

32,564

64,586

64,000

+0.9

+586

BTRP

9,516

10,004

8,235

9,126

10,434

10,012

8,988

9,863

19,875

19,000

+4.6

+875

Barberton

40,908

52,354

50,711

49,117

46,181

42,034

40,966

42,427

84,461

83,000

+1.8

+1,461

Evander UG*

9,117

12,607

23,409

27,312

21,538

19,173

11,701

10,359

29,532

30.874

-4.3

-1,342

Evander surface*

6,176

6,560

4,677

5,756

3,564

5,270

5,856

5,373

10,643

11,126

-4.3

-483

Evander

15,293

19,169

28,086

33,068

25,102

24,443

17,557

15,732

40,175

42,000

-4.3

-1,825

Elikhulu

30,315

26,863

24,596

25,900

26,320

25,830

24,170

24,743

50,573

50,000

+1.1

+573

Total

86,516

98,386

103,391

108,085

97,603

92,307

82,693

82,902

175,209

175,000

+0.1

+209

Source: Edison Investment Research, Pan African Resources. Note: *Edison estimates. Totals may not add up owing to rounding. UG, underground. BTRP, Barberton Tailings Retreatment Project.

At the same time, PAF also indicated an AISC for the reporting period in the range of US$1,325–1,350/oz (at an average exchange rate of ZAR17.77/US$) and reiterated output guidance of 178–190koz for FY24. It also reported net senior debt of US$18.9m as at end-June, which compared with an estimate of US$25–35m at the time of its 26 May announcement and US$49.9m as at end-December 2022.

From PAF’s announcement, we would conclude the following:

Net senior debt has been very well controlled. From this, we would infer that there has been good control of working capital. We would also infer that only negligible capital was expended at Mintails/Mogale in FY23 (NB We see little scope for capex to have been deferred at Elikhulu as it moves into Phase 2 of its operations, shifting from the Kinross to the Leslie and Bracken tailings storage facilities.)

That cash costs were therefore c US$1,200/oz in H223 after having been recorded as US$1,106/oz in H123, such that the average for the full year was c US$1,141/oz.

In light of these changes, we have revised our operating assumptions for each of PAF’s underlying operating mines to those shown in the table below (note that our assumptions for surface operations at Evander are not shown, owing to both the fact that it is the smallest of PAF’s operations and also space constraints; however, these may be taken to be the difference between the sum of the four operations shown and the ‘Total’ column):

Exhibit 2: PAF mines’* operational estimates, H223e, current cf prior

Barberton

Elikhulu

Evander

BTRP

Total

H223e

(prior)

H223e

(current)

H223e

(prior)

H223e

(current)

H223e

(prior)

H223e

(current)

H223e

(prior)

H223e

(current)

H223e

(prior)

H223e

(current)

Total tons milled (t)

119,517

119,517

6,215,143

6,215,143

51,108

48,088

385,072

403,381

6,910,841

6,926,129

Head grade (g/t)

9.00

9.16

0.32

0.33

7.27

6.84

1.72

1.80

0.62

0.63

Contained gold (oz)

34,575

35,208

63,605

65,113

11,940

10,570

21,299

23,372

138,739

140,980

Recovery (%)

92.5

92.5

38.0

38.0

98

98

42.2

42.2

59.6

58.8

Production (oz)

31,978

32,564

24,170

24,743

11,701

10,359

8,988

9,863

82,693

82,902

Production – other (oz)

Total production (oz)

31,978

32,564

24,170

24,743

11,701

10,359

8,988

9,863

82,693

82,902

Recovered grade (g/t)

8.32

8.47

0.12

0.12

7.12

6.70

0.73

0.76

0.37

0.37

Gold sold (oz)

31,978

32,564

24,170

24,743

11,701

10,359

8,988

9,863

82,693

82,902

Average spot price (US$/oz)

1,934

1,934

1,934

1,934

1,934

1,934

1,934

1,934

1,934

1,934

Average spot price (ZAR/kg)

1,143,223

1,132,737

1,143,223

1,132,737

1,143,223

1,132,737

1,143,223

1,132,737

1,143,223

1,132,737

Total cash cost (US$/oz)

1,006

1,314

729

864

1,573

2,028

620

703

972

1,200

Total cash cost (ZAR/kg)

594,529

769,811

431,228

506,147

930,217

1,187,906

366,280

411,894

574,522

702,730

Total cash cost (US$/t)

269.05

358.04

2.84

3.44

360.20

436.81

14.46

17.19

11.63

14.36

Total cash cost (ZAR/t)

4,947.66

6,523.74

52.16

62.67

6,624

7,959

265.91

313.25

213.82

261.62

Implied revenue (US$000)

61,832

62,965

46,735

47,843

22,625

20,030

17,379

19,071

159,895

160,299

Implied revenue (ZAR000)

1,137,071

1,147,287

859,435

871,740

416,063

364,966

319,595

347,491

2,940,405

2,920,784

Implied revenue (£000)

50,338

51,030

38,047

38,774

18,419

16,233

14,148

15,456

130,170

129,912

Implied cash costs (US$000)

32,156

42,791

17,629

21,378

18,409

21,006

5,568

6,935

80,355

99,446

Implied cash costs (ZAR000)

591,330

779,700

324,182

389,524

338,542

382,741

102,396

126,357

1,477,689

1,812,004

Implied cash costs (£000)

26,170

34,669

14,347

17,320

14,982

17,019

4,532

5,618

65,396

80,571

Source: Pan African Resources, Edison Investment Research. Note: *Excludes Evander surface operations.

In addition, we have altered our treatment of depreciation to better reflect run-of-mine (ROM) tonnes mined, given that it is formally calculated relative to its life-of-mine reserve base – hence if ROM production is lower, the charge is commensurately lower.

Finally, with respect to our H223 forecasts, we have also adjusted our forex rates to those shown below for the six-month period January to June 2023 (cf those previously assumed at the time of our last note on 30 May):

From ZAR22.5960/£ to ZAR22.4895/£ (-0.5%)

From ZAR18.3896/US$ to ZAR18.2209/US$ (-0.9%)

From US$1.2284/£ to US$1.2339/£ (+0.4%)

Of note is the fact that, contrary to the more orthodox pattern of forex movements, the period from 30 May to 30 June was characterised by strong sterling and a weak dollar with the rand in between.

Taken in aggregate, the consequence of all these changes is to adjust our financial forecasts for H223 to those shown in Exhibit 3, below:

Exhibit 3: PAF P&L statement by half year (H220–H223e)

US$000s*

H220

H121

H221

H122

H222

H123

H223e

(prior)

H223e

FY23e

FY23e

(prior)

Revenue

141,258

183,751

185,164

193,574

182,797

156,489

158,439

162,397

318,886

314,928

Cost of production

(71,956)

(98,245)

(110,570)

(108,368)

(118,077)

(99,282)

(80,355)

(99,446)

(198,728)

(179,637)

Depreciation

(10,977)

(12,741)

(19,333)

(13,268)

(13,160)

(11,122)

(15,705)

(9,600)

(20,722)

(26,827)

Mining profit

58,325

72,766

55,260

71,938

51,560

46,085

62,379

53,350

99,435

108,464

Other income/(expenses)

(27,720)

(6,704)

(6,115)

(7,711)

(2,117)

(3,610)

(5,330)

(4,802)

(8,412)

(8,940)

Loss in associate etc

0

0

0

0

0

0

0

0

0

0

Loss on disposals

0

0

0

0

0

0

0

0

0

0

Impairments

(20)

0

0

0

(467)

0

0

0

0

0

Royalty costs

(266)

(2,404)

(1,050)

(1,316)

(780)

(468)

(4,580)

(4,373)

(4,841)

(5,048)

Net income before finance

30,319

63,657

48,096

62,910

48,197

42,007

52,469

44,175

86,182

94,476

Finance income

258

300

456

661

434

456

Finance costs

(5,587)

(3,946)

(3,729)

(1,945)

(3,381)

(3,464)

Net finance income

(5,329)

(3,646)

(3,273)

(1,285)

(2,946)

(3,008)

(3,007)

(3,007)

(6,015)

(6,015)

Profit before taxation

24,990

60,011

44,823

61,626

45,250

38,999

49,462

41,168

80,167

88,461

Taxation

(2,602)

(19,239)

(10,903)

(15,573)

(16,351)

(10,063)

(14,248)

(11,621)

(21,684)

(24,311)

Effective tax rate (%)

10.4

32.1

24.3

25.3

36.1

25.8

28.8

28.2

27.0

27.5

PAT (continuing ops)

22,388

40,773

33,920

46,053

28,899

28,936

35,213

29,547

58,483

64,150

Minority interest

(185)

(136)

0

0

(136)

(136)

Ditto (%)

(0.6)

(0.5)

0.0

0.0

(0.2)

(0.2)

Attributable profit

29,084

29,072

35,213

29,547

58,619

64,286

Headline earnings

22,416

40,772

33,919

46,053

29,551

29,072

35,214

29,547

58,619

64,286

Est. normalised headline earnings

50,136

47,476

40,034

53,764.1

31,668

32,682

40,544

34,349

67,031

73,226

EPS (c)

1.16

2.11

1.76

2.39

1.51

1.52

1.84

1.54

3.06

3.35

HEPS** (c)

1.16

2.11

1.76

2.39

1.54

1.52

1.84

1.54

3.06

3.35

Normalised HEPS (c)

2.60

2.46

2.08

2.79

1.65

1.71

2.12

1.79

3.50

3.82

Source: Pan African Resources, Edison Investment Research. Note: As reported basis. *Unless otherwise indicated. **HEPS, headline earnings per share (South African reporting standard).

Our final estimate for normalised headline earnings per share (HEPS) of 1.79c in H223 and 3.50c in FY23 compares with the market consensus as follows:

Exhibit 4: Edison PAF normalised HEPS forecast cf market consensus, H223e and FY23e

(c/sh)

H123

H223e

Sum H123–H223e

FY23e

Edison

1.71

1.79

3.50

3.50

Market consensus

1.71

2.10

3.81

3.20

Market consensus high

1.71

2.10

3.81

3.80

Market consensus low

1.71

2.00

3.71

3.00

Source: Refinitiv (15 August 2023)

Readers should note the apparent anomaly between the estimate for the year calculated by adding the actual H123 outcome and (apparent) second half forecasts with the full year estimates (ie columns 4 and 5 of the above table). Among other things, this could be taken to suggest that the analysts that forecast annual numbers are not the same as those forecasting on a semi-annual basis (with the possible exception of the analyst at the high end of the market range) or that they are using different financial models. Note that, on balance, we would suggest that it is probably the H223e forecasts shown in the above table that are obsolete.

Growth projects

Mintails

Shortly before releasing its production numbers for FY23, on 1 August, PAF announced that all conditions precedent to its ZAR1.3bn (c US$69.9m at prevailing forex rates) senior debt facility, designated for the funding of the group’s Mintails project, had been fulfilled and that it had become effective. The senior debt facility was underwritten by Rand Merchant Bank (RMB), with Nedbank acting as co-financier.

As such, following the successful issue of the group’s inaugural Domestic Medium Term Note programme of ZAR800m (c US$43.0m) in December 2022, completion of a ZAR400m (c US$21.5m) derivative funding structure with RMB in March and the closure of the senior debt facility, the full upfront capital of ZAR2.5bn (c US$134.4m) for Mintails’ development has now been secured. At the same time, the South African Department of Mineral Resources and Energy has granted PAF an environmental authorisation for the project in terms of regulation 24(1)(a) of the Environmental Impact Assessment Regulations, 2014.

As a consequence, PAF has at least two organic growth projects in prospect (namely the Mintails Soweto Cluster and Royal Sheba) for development in the immediate future. Beyond these, it also has at least the Fairview sub-vertical shaft, Rolspruit, Poplar and Evander South assets available for potential development. In this context, steady-state production for Mintails remains anticipated by December 2024.

Royal Sheba

Mine layout optimisation and scheduling has now been finalised at Royal Sheba and requests for quotations issued for initial development and production activities. Preliminary optimisation work for life-of-mine planning has been completed at a cut-off grade of 1.7g/t, which implies an average mining grade of approximately 3.0g/t and c 235,000oz gold recovered over the life of the project, with the orebody still open at depth. In the meantime, DRA Global has finalised the feasibility study for placing a crushing and milling circuit at the Royal Sheba Mine site, together with the design to enable slurry pumping from the milling plant at Royal Sheba to the Barberton Tailings Retreatment Project (BTRP). The processing plant’s feasibility study and the project’s financial model are being updated and reviewed. A phased approach to capital spending, based on the availability of material to feed the BTRP plant, is also being considered, which will entail the phased development of the decline and production levels as well as the ventilation infrastructure required for initial stoping operations. First stoped ore is planned in 2025 at 5,000t per month, ramping up to 10,000t, 30,000t and 45,000t per month, every 12 months thereafter in line with a set lateral and vertical development schedule. A trucking cost trade-off analysis indicates that the onsite crushing and milling circuit and pipeline will only be required once production rates reach 45,000t per month. The internal feasibility study for the project is expected to be completed later in CY23.

Group

In the light of these developments (including PAF’s unchanged guidance for FY24), we continue to forecast that group production at PAF will reach c 250koz per annum in 2026 and push normalised HEPS to around 6.00c per share.

Exhibit 5: Estimated Pan African group gold production profile, FY18–29e

Source: Edison Investment Research, Pan African Resources

Updated (absolute) valuation

In addition to changes to our immediate output assumptions, we have adjusted our long-term foreign exchange rates (in real terms), to reflect the recent strength of the rand, in particular, and also, albeit to a lesser extent, sterling against the US dollar:

From ZAR24.3107/£ at the time of our last note to ZAR23.6963/£ (-2.5%), being that prevailing at the time of writing.

From ZAR19.7255/US$ to ZAR18.6022/US$ (-5.7%).

From US$1.2322/£ to US$1.2739/£ (+3.4%).

In the light of these changes, our absolute valuation of PAF (based on its existing four producing assets plus the 25 and 26 Level project and Mogale) remains virtually unchanged at 34.24c (cf 34.17c previously), which is based on the present value of the estimated maximum potential dividend stream payable to shareholders over the life of its mining operations (applying a 10% discount rate to US dollar dividends).

Exhibit 6: PAF estimated life of operations’ diluted EPS and (maximum potential*) DPS

Source: Pan African Resources, Edison Investment Research. Note: *From FY25. Excludes discretionary exploration investment.

Stated alternatively, based on our long-term dividend forecasts, we calculate that an investment in PAF’s shares at a price of 12.80p offers investors an internal rate of return of 25.6% per annum in US dollar terms to at least the end of FY39.

A summary of the changes to both Edison’s valuation and our FY23 earnings forecasts according to each factor considered in our analysis is as follows:

Exhibit 7: PAF valuation and EPS change summary

Factor

Valuation change

(US$/share)

Valuation

(US$/share)

FY23e EPS forecast (US$/share)

EPS change

(US$/share)

Initial

34.17

3.82

H223 production

+0.05

34.22

3.89

+0.07

Edison estimate of costs

-0.80

33.42

3.06

-0.83

FY23e capex & working capital adjustments

+0.77

34.19

3.12

+0.06

Forex

-2.91

31.28

3.10

-0.02

Mintails’ derivative funding structure

+0.73

32.01

3.26

+0.16

Depreciation adjustment

-0.02

31.99

3.50

+0.24

Discounting to 1 July 2023

+2.25

34.24

3.50

-

Final

-

34.24

3.50

-

Source: Edison Investment Research

Including its other growth projects and assets, our updated total valuation of PAF as a whole is provided in Exhibit 8, below:

Exhibit 8: PAF absolute valuation summary

Project

Current valuation
(USc/share)

Previous valuation
(USc/share)

Existing producing assets (including 24 Level and 25 & 26 Level and Mogale projects)

34.24

34.17

FY23e dividend

0.95

N/A

Fairview Sub-Vertical Shaft project

0.76

0.75

Royal Sheba (resource-based valuation)

0.57

0.53

MC Mining shareholding

0.08

0.07

Sub-total

36.60

35.53

EGM underground resource

0.22-5.24

0.22–5.24

Sub-total

36.82–41.84

35.75–40.77

Egoli

13.63

14.07

MSC

1.26

1.30

Total

51.71–56.73

51.12–56.14

Source: Edison Investment Research. Note: Numbers may not add up owing to rounding.

Historical relative and current peer group valuation

Historical relative valuation

Exhibit 9 below depicts PAF’s average share price in each of its financial years from FY10 to FY22 and compares this with HEPS in the same year. For FY23 and FY24, the current share price (12.80p) is compared with our forecast normalised HEPS for those years. As is apparent from the graph, PAF’s price to normalised HEPS ratios of 4.7x and 3.4x for FY23 and FY24, respectively, (based on our forecasts, see Exhibits 3 and 11) remains (in the case of the former) far towards the bottom of the range of recent historical P/E ratios of 4.1–14.8x for the period FY10–22 and (in the case of the latter) below the bottom of that range:

Exhibit 9: PAF historical price to normalised HEPS** ratio, FY10–24e

Source: Edison Investment Research. Note: *Completed historical years calculated with respect to average share price within the year shown and normalised HEPS; zero normalisation assumed before 2016. **HEPS shown in pence prior to 2018 and US cents thereafter.

If PAF’s average year one price to normalised EPS ratio of 8.6x for the period FY10–22 is applied to our normalised earnings forecasts, it implies a share price for PAF of 23.51p in FY23 (cf 26.56p previously) followed by one of 32.69p in FY24. Stated alternatively, PAF’s current share price of 12.80p, at prevailing forex rates, appears to be discounting FY23 and/or FY24 normalised HEPS falling to 1.90c per share (cf 4.44c reported in FY22 and 3.50c and 4.86c forecast in FY23 and FY24, respectively).

Relative peer group valuation

In the meantime, it may be seen that PAF remains cheaper than its London- and South Africanlisted gold mining peers on at least 86% of comparable common valuation measures (31 out of 36 individual measures in the table below) if Edison forecasts are used or 77% if consensus forecasts are used (28 out of 36 individual measures).

Exhibit 10: Comparative valuation of PAF with South African and London peers

Company

EV/EBITDA (x)

P/E (x)

Yield (%)

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

AngloGold Ashanti

5.6

4.2

12.0

9.1

1.5

2.1

Gold Fields

5.6

4.1

12.5

8.9

3.2

4.3

Sibanye Stillwater

2.5

2.2

5.1

4.6

6.7

7.5

Harmony

4.4

3.2

8.9

5.0

0.3

1.9

Centamin

3.0

3.1

7.7

9.6

4.1

4.5

Endeavour Mining (consensus)

4.9

4.7

16.2

13.6

3.8

4.1

Average (excluding PAF)

4.3

3.6

10.4

8.5

3.3

4.1

PAF (Edison)

3.2

2.8

4.7

3.4

5.9

5.9

PAF (consensus)

3.3

3.0

5.7

5.1

5.5

4.8

Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced at 15 August 2023.

Alternatively, applying PAF’s peers’ average year one P/E ratio of 10.4x to our normalised HEPS forecast of 3.50c per share for FY23 implies a share price for the company of 28.47p at prevailing forex rates. Applying its peers’ average year two P/E ratio of 8.5x to our normalised HEPS forecast of 4.86c per share implies a share price of 32.30p.

Readers’ attention is also drawn to the decline evident in the market’s year two yield estimate for PAF, which appears to suggest that it believes the company will cut its dividend in FY24 (or that the rand will fall very sharply versus the US dollar, but that this will not be reflected in the company’s results), which we regard as highly unlikely, except in extenuating circumstances.

Exhibit 11: Financial summary

US$'000s

2018

2019

2020

2021

2022

2023e

2024e

2025e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

145,829

218,818

274,107

368,915

376,371

318,886

335,824

413,063

Cost of sales

(107,140)

(152,980)

(158,457)

(208,815)

(226,445)

(198,728)

(200,358)

(221,530)

Gross profit

38,689

65,838

115,650

160,100

149,926

120,157

135,466

191,534

EBITDA

 

 

38,131

65,484

115,176

156,646

147,830

115,316

132,103

185,968

Operating profit (before GW and except.)

 

 

31,506

49,256

93,673

124,572

121,402

94,594

108,706

153,704

Intangible amortisation

0

0

0

0

0

0

0

0

Exceptionals

(16,521)

10,596

(28,593)

(12,819)

(10,295)

(8,412)

(1,467)

322

Other

0

0

0

0

0

0

0

0

Operating profit

14,985

59,852

65,079

111,753

111,107

86,182

107,239

154,026

Net interest

(2,222)

(12,192)

(12,881)

(6,919)

(4,231)

(6,015)

(2,137)

(10,651)

Profit before tax (norm)

 

 

29,284

37,064

80,791

117,653

117,171

88,579

106,569

143,053

Profit before tax (FRS 3)

 

 

12,763

47,660

52,198

104,834

106,876

80,167

105,102

143,375

Tax

2,826

(8,174)

(7,905)

(30,141)

(31,924)

(21,684)

(13,385)

(18,052)

Profit after tax (norm)

32,110

28,890

72,887

87,511

85,247

66,895

93,184

125,001

Profit after tax (FRS 3)

15,589

39,486

44,293

74,692

74,952

58,483

91,717

125,323

Average number of shares outstanding (m)*

1,809.7

1,928.3

1,928.3

1,928.3

1,926.1

1,916.5

1,916.5

1,916.5

EPS - normalised (c)

 

 

1.31

1.64

3.78

4.54

4.44

3.50

4.86

6.52

EPS - FRS 3 (c)

 

 

0.87

2.05

2.30

3.87

3.90

3.06

4.79

6.54

Dividend per share (c)

0.00

0.15

0.84

1.27

1.04

0.95

0.97

0.97

Gross margin (%)

26.5

30.1

42.2

43.4

39.8

37.7

40.3

46.4

EBITDA margin (%)

26.1

29.9

42.0

42.5

39.3

36.2

39.3

45.0

Operating margin (before GW and except.) (%)

21.6

22.5

34.2

33.8

32.3

29.7

32.4

37.2

BALANCE SHEET

Fixed assets

 

 

315,279

361,529

314,968

398,533

401,139

448,966

617,886

599,111

Intangible assets

56,899

49,372

43,466

50,548

44,210

46,245

48,459

50,671

Tangible assets

254,247

305,355

270,286

346,922

355,802

401,594

568,300

547,313

Investments

4,134

6,802

1,216

1,064

1,127

1,127

1,127

1,127

Current assets

 

 

29,009

31,601

53,648

84,558

55,953

69,057

36,578

87,414

Stocks

4,310

6,323

7,626

11,356

9,977

10,879

11,202

13,779

Debtors

22,577

18,048

11,245

37,211

17,546

23,221

23,939

29,445

Cash

922

5,341

33,530

35,133

26,993

33,520

0

42,753

Current liabilities

 

 

(44,395)

(63,855)

(78,722)

(105,978)

(58,989)

(61,210)

(134,433)

(65,356)

Creditors

(37,968)

(39,707)

(62,806)

(75,303)

(57,117)

(59,338)

(60,710)

(65,003)

Short-term borrowings

(6,426)

(24,148)

(15,916)

(30,675)

(1,872)

(1,872)

(73,722)

(353)

Long-term liabilities

 

 

(152,906)

(145,693)

(106,276)

(93,482)

(103,494)

(122,024)

(112,070)

(106,428)

Long-term borrowings

(112,827)

(109,618)

(73,333)

(28,011)

(37,088)

(55,394)

(44,621)

(37,453)

Other long-term liabilities

(40,078)

(36,076)

(32,943)

(65,471)

(66,406)

(66,630)

(67,449)

(68,975)

Net assets

 

 

146,988

183,582

183,620

283,632

294,609

334,790

407,962

514,741

CASH FLOW

Operating cash flow

 

 

5,345

59,822

73,399

124,549

142,879

86,001

119,952

175,332

Net Interest

(6,076)

(14,685)

(10,834)

(5,623)

(2,794)

(6,015)

(2,137)

(10,651)

Tax

(1,634)

(4,497)

(5,804)

(18,902)

(8,520)

(3,708)

(12,566)

(16,526)

Capex

(127,279)

(52,261)

(30,849)

(44,151)

(81,951)

(68,549)

(192,317)

(13,489)

Acquisitions/disposals

6,319

466

207

3

563

0

0

0

Financing

11,944

(0)

0

0

(3,222)

0

0

0

Dividends

(11,030)

(2,933)

(2,933)

(17,782)

(21,559)

(23,100)

(18,302)

(18,545)

Net cash flow

(122,411)

(14,088)

23,186

38,095

25,396

(15,371)

(105,370)

116,122

Opening net debt/(cash)

 

 

3,138

118,332

128,424

55,719

23,553

11,967

23,747

118,343

Exchange rate movements

(619)

537

1,663

7,979

(4,401)

0

0

0

Other

7,836

3,459

47,856

(13,907)

(9,409)

0

0

0

Closing net debt/(cash)

 

 

118,332

128,424

55,719

23,553

11,967

27,338

129,117

2,221

Source: Company sources, Edison Investment Research. Note: *2,222.9m shares in issue, of which 306.4m held in treasury after share buyback programme, such that a net 1,916.5m are in issue post-consolidation.


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Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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This report has been commissioned by Pan African Resources and prepared and issued by Edison, in consideration of a fee payable by Pan African Resources. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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