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Northam Platinum – SELL

Renaissance Capital

6 February 2019

Metals & Mining

	Figure 100: Northam Platinum, ZARmn (unless otherwise noted)
	Northam				NHMJ.J						Target Price, ZAR:					40
	Market capitalisation, ZARmn:				24,837						Last Price, ZAR:					49
	Enterprise value, ZARmn:				29,232						Potential 12-month return:					-17.5%
	Jun-YE			2017	2018	2019E	2020E	2021E		Jun-YE	2017	2018		2019E	2020E	2021E
	Income statement									Balance sheet
	Revenue			6,865	7,553	14,328	14,251	15,956		Net operating assets	15,261	19,650		19,986	20,817	21,751
	Underlying EBITDA			1,068	1,268	3,136	4,027	4,794		Investments	8	0		0	0	0
	Underlying EBIT			616	826	2,470	3,410	4,154		Equity	8,092	7,387		7,495	8,105	9,054
	Equity accounted income			5	4	0	0	0		Minority interest	0	0		0	0	0
	Net interest			-984	-1,137	-1,467	-1,623	-1,800		Net debt	7,177	12,263		12,491	12,711	12,698
	Other operating items			-57	-164	-331	-342	-356		Balance sheet ratios
	Taxation			-212	-232	-564	-834	-1,050
	Minority interest in profit			0	0	0	0	0		Gearing (net debt/(net debt+equity))	47.0%	62.4%		62.5%	61.1%	58.4%
	Attributable profit			-634	-702	108	611	948		Net debt to EBITDA	6.7x	9.7x		4.0x	3.2x	2.6x
	Headline earnings			-635	-699	108	611	948		RoCE	3.9%	4.4%		11.4%	15.2%	17.8%
	HEPS, ZAc			-182	-201	31	175	271		RoIC (after tax)	4.2%	5.9%		10.8%	12.5%	14.0%
										RoE	-7.5%	-9.0%		1.5%	7.8%	11.1%
	Normalised HEPS, ZAc			78	83	288	424	533		Cash flow statement
	Thomson Reuters consensus HEPS, ZAc					-16	151	374
	DPS declared, ZAc			0	0	0	0	0		Operating cash flow	934	225		3,585	3,482	3,728
										Capex (net of disposals)	-1,645	-3,778		-2,050	-1,762	-1,572
	Underlying EBIT									Other	-433	-413		-331	-342	-356
	Zondereinde operations			177	298	1,044	1,420	1,468		FCF	-1,143	-3,966		1,205	1,379	1,800
	EBIT margin			4%	7%	11%	17%	17%		Equity shareholders' cash	-1,127	-3,980		1,115	1,314	1,766
	Booysendal operations			437	525	1,427	1,990	2,687		Dividends and share buy backs	0	0		0	0	0
	EBIT margin			17%	17%	31%	33%	37%		Non-cash increase in debt	-1,017	-1,107		-1,343	-1,534	-1,753
	EBIT			616	826	2,470	3,410	4,154		Movement in net debt	-2,144	-5,086		-228	-220	14
	Income statement ratios									Cash flow ratios
	EBITDA margin			16%	17%	22%	28%	30%		Working capital days	58	118		47	46	45
	EBIT margin			9%	11%	17%	24%	26%		FCF yield	-4.8%	-14.3%		4.1%	4.6%	6.1%
	HEPS growth			-29%	-10%	115%	466%	55%		Equity shareholders' yield	-6.7%	-25.7%		6.6%	7.7%	10.4%
	Dividend payout ratio			0%	0%	0%	0%	0%		Capex/EBITDA	154.0%	297.9%		65.4%	43.8%	32.8%
	Input assumptions									Cash conversion	1.8x	5.7x		10.3x	2.2x	1.9x
										Valuation
	Platinum, $/oz			988	940	820	970	1,134
	Palladium, $/oz			738	977	1,151	1,152	1,050		SoTP DCF fair value and calculation of target price					ZARmn	ZAR/sh
	Rhodium, $/oz			821	1,634	2,440	2,271	2,098		Zondereinde operations					8,369	23.9
	$/ZAR			13.60	12.85	14.25	14.25	14.09		Booysendal operations					18,167	51.9
										Other					-185	-0.5
	3PGM sales volumes (excl. third party)									Enterprise value					26,350	75.3
	Zondereinde operations	lumes		230	178	469	347	347		Investments as at 30 June 2018					0	0.0
	Booysendal operations	lumes		188	199	264	331	397		Net debt as at 30 June 2018					-12,263	-35.1
	Group			418	377	732	678	744		Cash used in share buy-backs during 2019E					0	0.0
	Volume growth			-0.5%	-9.7%	94.2%	-7.4%	9.7%		Minority interest					0	0.0
	3PGM breakeven price, $/oz									Equity value					14,087	40.3
				832	921	867	867	902		Rounded to						40
	Zondereinde operations									Current share price on 1/2/2019						48.5
	Booysendal operations			653	741	653	700	697		Expected share price return						-17.5%
	Group (mined production)			751	826	790	785	792		Plus: expected dividend yield						0.0%
	Contribution to FY19E underlying EBITDA									Total implied one-year return						-17.5%
										Share price range, ZAR:
										12-month high	52	12-month low				32
										Price move since high	-7.3% Price move since low					53.2%
										Calculation of WACC
										WACC	14.5%	Cost of debt				12.5%
							Zondereinde			Risk-free rate	9.0%	Tax rate				28%
							45%			Equity risk premium	6.0% After-tax cost of debt					9.0%
Booysendal										Beta	1.3	Debt weighting				30%
										Cost of equity	16.8%	Terminal growth rate				6.0%
55%
										Valuation ratios
										Jun-YE	2017	2018		2019E	2020E	2021E
										P/E multiple	-26.4x	-22.1x		157.3x	27.8x	17.9x
										Normalised P/E multiple	61.5x	53.5x		16.8x	11.4x	9.1x
										Dividend yield	0.0%	0.0%		0.0%	0.0%	0.0%
										EV/EBITDA	22.4x	21.9x		9.4x	7.4x	6.2x
										P/B	2.1x	2.1x		2.3x	2.1x	1.9x
										NAV per share, ZAR	23	21		21	23	26

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

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