Der Brochen And Mogalakwena Developments Will Improve Future PGM Efficiency

Key Takeaways

• The demerger from Anglo American Group and operational focus could enhance profitability and earnings through improved efficiency and cost management.
  
• Favorable PGM demand trends, driven by hybrid vehicles, and increased sales volumes support a positive long-term revenue outlook.
  
• Decline in platinum group metals prices and high capital expenditures pose financial strain, challenging profitability and resource allocation despite cost-cutting efforts.

Catalysts

Engages in the production and supply of platinum group metals, base metals, and precious metals in South Africa, Asia, Europe, North America, and internationally.

• The completion of the demerger from Anglo American Group positions Anglo American Platinum as a stand-alone PGM company, potentially improving operational efficiency and focus, which could enhance profitability margins and earnings.
  
• Operational excellence initiatives, such as the ramp-up of Der Brochen and Mogalakwena underground developments, are expected to bolster production efficiency and cost management, potentially supporting revenue growth and net margins in the future.
  
• The company's cost reduction initiatives have resulted in significant operational savings, with targets to further decrease costs, thereby enhancing net margins and maintaining profitability even in a challenging PGM pricing environment.
  
• Increased sales volumes and stabilized processing operations contribute to a robust operational outlook, potentially improving future revenue streams as inventory levels normalize and smelter utilization remains high.
  
• Strategic market positioning, reinforced by demand trends favoring hybrid vehicles using PGM catalysts, suggests a favorable long-term outlook for PGM demand, which could positively impact revenue growth and market valuation.

Anglo American Platinum Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Anglo American Platinum's revenue will decrease by 0.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.5% today to 12.1% in 3 years time.
• Analysts expect earnings to reach ZAR 13.5 billion (and earnings per share of ZAR 51.24) by about May 2028, up from ZAR 7.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ZAR22.7 billion in earnings, and the most bearish expecting ZAR6.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.1x on those 2028 earnings, down from 23.7x today. This future PE is greater than the current PE for the ZA Metals and Mining industry at 7.1x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.61%, as per the Simply Wall St company report.

Anglo American Platinum Future Earnings Per Share Growth

Risks

• The company's revenue decreased by 13% due to a decline in the PGM rand basket price, affecting overall earnings and profit margins.
  
• Despite significant cost-cutting measures, including a reduction in workforce and operating costs, further cost savings may be limited, potentially impacting future net margins if PGM prices remain low.
  
• Amandelbult's reliance on chrome prices for free cash flow generation may pose a risk if chrome prices decline, thereby impacting cash flow and profitability for this specific asset.
  
• The company has significant capital expenditures planned for projects such as Mogalakwena underground and Der Brochen ramp-up, which could strain financial resources, especially if PGM prices remain challenging, affecting cash flow and capital allocation.
  
• The impending demerger and restructuring costs, along with the need to establish a strong independent capital structure, could require more resources, possibly affecting financial stability and liquidity.

Valuation

• The analysts have a consensus price target of ZAR687.25 for Anglo American Platinum based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ZAR850.0, and the most bearish reporting a price target of just ZAR488.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR112.0 billion, earnings will come to ZAR13.5 billion, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 18.6%.
• Given the current share price of ZAR639.19, the analyst price target of ZAR687.25 is 7.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.