To make a 400% return on my next investment — currently sitting as cash in my Stocks and Shares ISA — I’ll invest in UK growth shares. There are arguments to be made that small-caps could outperform as the economy (hopefully) continues to reopen. That’s because they can expand into new geographies and generally be more nimble than their larger peers.
On top of that, there have been increasing numbers of takeovers – often at a premium to the share price – as well as increased merger and acquisition activity. All this could boost smaller-cap shares in particular, I think.
UK growth share
The platinum miner Sylvania Platinum (LSE: SLP) is the share I think could help add incredible growth to my portfolio. I’ve been comparing it to other UK growth shares and think it has significant potential.
Why? Because it has a strong history of revenue growth and capital returns. Revenue has consistently gone up in recent years. It has gone from £39.5m in 2016 to £114m in 2020. That strikes me as phenomenal.
Profit before tax and earnings growth have been very strong in the recent past. I see no reason why this trajectory will change in the future. Indeed I’d be prepared to invest in Sylvania Platinum on the basis that the trends supporting the company will accelerate.
The market it’s in is also very well positioned for growth. Platinum group metals (PGMs), including platinum, palladium and rhodium (which are what Sylvania Platinum mines and processes) are used in electric vehicles. They have many other uses too, but it’s the shift to electric vehicles that is exciting investors, pushing up share prices and pushing up the prices of the metals. It’s this shift that holds the most potential for the future of Sylvania Platinum’s share price.
Then on top of all that, with a market capitalisation of just under £350m, Sylvania Platinum is small enough to be able to grow significantly in the years ahead.
What are the risks?
As with any miner, there are risks. Pricing is controlled by the market, not the company, so mining can be very cyclical. There’s a lot of demand right now, and a lack of supply, but in the coming years that could reverse.
Mining also requires a lot of investment. All this capital expenditure (capex) may require additional funding from shareholders, which in turn dilutes holdings and adds to the share count. Both these things can hold back returns. There’s also the impact of currency to consider. Sylvania Platinum is paid in US dollars but must convert that into South African rand. That exposes it, and shareholders, to currency risks.
Overall though, as a low-cost operator with favourable market conditions supporting demand for its product, I think Sylvania Platinum could help me turn £1,000 into £4,000. Earnings per share more than doubled between 2019 and 2020, showing just how much growth there is. From 2016 to 2020 the EPS went from 1.28¢ to 14.62¢, which is phenomenal. I think it could deliver more of the same in future.
