Value play or value trap

2nd Mar by Olly Daney

6 comments 532 reads

Good morning everyone I’m currently racking my brain if Sylvania platinum is a value play or value trap. With the share price having fallen so much over the last year it now looks it be good value. According to Simply Wall Street it’s fair value is currently 250p which seems to be amazing as you can buy it today for only 50p but to me that seem a very over optimistic valuation given the state of the commodity market. Stockopedia has Slp valued on a PE of 5 on next years earning with a ROCE of 9 and an ROE of 7. These are not amazing returns but given that we are around the bottom end of the cycle in commodity prices these should go back into the 20s when things turn around, and the fact that they are still fully profitable when the majority of its competitors are currently running losses.

A few bull and Bear points.

Bull:

It has 100 million in net cash
South Africa seems to be hospitable to the mining sector
It’s been well run for many years by the same people
It has had a good control of cost especially compared to its peers
The commodities it’s selling are running mainly in deficits.

Bear:

The commodities markets are showing signs of a recovery soon
PGM demand is very closely tied to combustion engine car demand
Cost inflation could continue
Political uncertainty is a constant in South Africa

Thank you for taking the time to read this, if anyone has any points I would love to know. As I still can’t work this one out

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Clive44

2nd Mar

I've been holding SLP for the dividend. But that is reducing now so it makes the decision to keep or sell harder. I estimate that the final div this year in October will be 2.5p to 3p. So total divs for 2024 will come out around 3.5p to 4p giving a yield of 7-8%. Good but not great.

Sill undecided.

XTR

No doubt that Sylvania Platinum (LON:SLP) is cheap, but cheap [value] stocks can continue to get cheaper. My preference is to watch value stocks and wait for a momentum signal before taking the position, with the aim of avoiding long periods of sideways action or further decline. Exceptions are when a decent yield is paid [and likely to continue].

With rising inflation [recent US PCE] and China picking up, I'm expecting commodities to rally for the next while, which would be good for Sylvania Platinum (LON:SLP) .

doctor dave

Sylvania Platinum (LON:SLP) Clearly "good value" but could stay like that for a long time. I wouldn't buy without seeing a Momentum shift.

RabidDog

As you say SLP is well run and investor friendly but it’s a pure PGM play. If you think resource prices have bottomed then it’s an excellent investment but the share price can’t buck the commodity movement. I’ve held for years but did sell 50% back end of last year.

littledavesab

5th Mar

Is it harsh (on AIM miners) to say its a mining stock on AIM so you have to be very lucky to get a good one ? Personally this is my avoid area!

Value play or value trap

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Olly Daney

6 comments

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