Sylvania Platinum (LSE: SLP), the South African miner of platinum group metals, is a cheap share. With a price-to-earnings ratio (P/E) of 3.5 and a forward price to earnings growth ratio of 0.3, the shares look very undervalued and potentially are a Jim Slater-style growth stock; an undervalued growth share. To me that makes the shares a potential no brainer buy. Indeed I already have some in my portfolio. Given its future prospects, I’m keen to add more to my portfolio.
Why a no brainer?
As with other miners at the moment, Sylvania Platinum provides a high yield to investors. Buying the shares now nets a dividend yield of around 4% and could well rise in the coming years.
The historic performance gives me a lot of confidence in management and in what the miner does. Revenue has risen from $39.5m to $206m in 2021. That’s a phenomenal rate of top line growth. Sylvania also has great margins and returns on capital employed, which show, in my eyes at least, that it’s a high-quality operator.
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It’s not all about the past though. The future also looks bright. The low cost of operations makes Sylvania very cash generative.
It is expected that there won’t be enough palladium and rhodium produced to meet demand, which should support pricing and therefore Sylvania’s profits.
Overall, the combination of income and growth to me is very enticing. It’s typically what I want to see in a lot of shares that I own. Polar Capital, one of my better performing shares likewise combines a higher than average yield with an undervalued share price that offers growth. I expect Sylvania Platinum, like Polar, can keep growing in the coming years.
What could go wrong?
The share price has recently been hit by a fall in the rhodium price. This highlights the vulnerability of the Sylvania Platinum share price, like other miners, to the price of the commodities it processes. Also with its operations all tending to be clustered together in different parts of South Africa, regional or national problems in that country could really affect the miner’s operations and finances. For example, operations were suspended at its Lesedi mine as a safety measure due to inadequate water drainage. Weak infrastructure in South Africa may hamper the miner’s operations.
Another threat is that lower car sales will carry on for some time, reducing demand for the metals that Sylvania mines for. The metals are mainly used in car catalysts.
Lastly, increased focus among investors on the environment may mean less professional money is put into mining stocks. That factor may limit share price growth.
So as with any company, there are risks. This is important to acknowledge. Yet when I look at how cheap the shares are and Sylvania’s potential for future growth, this means for me adding more of the shares is an absolute no brainer.
