Leadership Shifts And Cost Pressures Will Spark Battery Metals Turnaround

Key Takeaways

• Leadership changes may lead to strategic shifts that could misalign with market expectations, affecting revenue growth and investor confidence.
  
• Strategic expansion into battery metals and recycling requires large investment, potentially impacting future revenue and free cash flow.
  
• Stable management, improved safety, revenue growth, and diversified ventures contribute to resilient earnings, with strategic partnerships and tax credits enhancing financial performance.

Catalysts

Operates as a precious metals mining company in South Africa, the United States, Europe, and Australia.

• Sibanye Stillwater’s change in leadership, with Richard Stewart appointed as CEO designate, poses a risk of strategic shifts that might not align with current market expectations, potentially impacting revenue growth and investor confidence.
  
• The reliance on a diversified commodity portfolio, including South African and U.S. Platinum Group Metals (PGMs), could expose earnings to fluctuations in PGM basket prices, impacting revenue stability and overall earnings.
  
• The projected increase in operating costs for both the gold and PGM operations, despite restructuring efforts, could compress net margins if commodity prices do not rise significantly.
  
• The company’s strategic expansion into battery metals and recycling operations involves significant capital investments, which may not yield immediate returns, potentially affecting future revenue and free cash flow.
  
• The settlement of legal disputes, such as the Appian case, could result in significant financial liabilities, introducing uncertainty to future earnings and impacting overall profitability.

Sibanye Stillwater Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sibanye Stillwater's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.5% today to 7.6% in 3 years time.
• Analysts expect earnings to reach ZAR 9.3 billion (and earnings per share of ZAR 2.73) by about April 2028, up from ZAR -7.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ZAR11.9 billion in earnings, and the most bearish expecting ZAR6.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, up from -8.7x today. This future PE is greater than the current PE for the US Metals and Mining industry at 6.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.0%, as per the Simply Wall St company report.

Sibanye Stillwater Future Earnings Per Share Growth

Risks

• The strategic continuity and stable leadership transition with Richard Stewart as CEO designate suggest a stable management approach, which could positively impact earnings stability and strategic implementation.
  
• The improvement in safety performance with the lowest recorded levels of serious injury and total recordable injury frequency rates since 2013 is likely to reduce operational disruptions and potential liabilities, potentially improving net margins.
  
• Revenue growth of 7% for the second half of 2024 compared to 2023 and the stability in Group adjusted EBITDA at ZAR 6.4 billion for three consecutive periods indicate a stabilized financial performance, which could support a healthy revenue trajectory.
  
• The diversified business model, including revenue generation from gold, PGMs, and strategic ventures such as tailings reprocessing and recycling, provides a buffer against price volatility in individual commodities, supporting future revenue and earnings resilience.
  
• Strategic partnerships and favorable regulatory frameworks, such as the multipolarity strategy resulting in significant tax credits from U.S. Section 45X, offer additional financial benefits that could enhance net margins, emphasizing an improved financial foundation.

Valuation

• The analysts have a consensus price target of ZAR19.41 for Sibanye Stillwater 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 ZAR26.0, and the most bearish reporting a price target of just ZAR16.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR121.3 billion, earnings will come to ZAR9.3 billion, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 21.0%.
  
• Given the current share price of ZAR22.5, the analyst price target of ZAR19.41 is 15.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.