Sylvania Platinum And Games Workshop: Share Buybacks And All-time Highs

12th Jun '20 by Jack Brumby

24 comments 7516 reads

Sometimes the simplest stock market signals can be the most powerful. A lot of importance is currently being attached to companies that are able to maintain dividends in this market. The same logic can be applied those that have continued with share buybacks.

One such company is small cap platinum group metals (“PGM”) producer Sylvania Platinum (LON:SLP) , which today trades at 43p. Its most recent repurchase announcement came on the 1st of July. Following today's update, I've taken a quick look at Games Workshop as well - as always, great to hear what others make of the results.

Sylvania Platinum (LON:SLP)

Stock price: 43.68p
Market cap: £121.87m
1y RS: +82.3%

(I hold)

I last looked at the company here in early March, a couple of weeks before the proverbial hit the fan. Its shares are down by more than 30% since an all-time high of 63p earlier this year (driven by surging basket prices). Even taking into account COVID-related earnings downgrades, the PGM producer is valued at just four times forecast earnings.

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Brokers also appear to be forecasting a remarkable yield. In fact that yield looks so anomalously large I am tempted to put it to one side. The latest broker note I can get my hands on (Liberum, 25th of March 2020) does forecast a 10.89 cent dividend payment for FY20, but I’ll believe it when I see it.

What’s more certain is the ongoing share buyback programme. Back on 17 February the miner proposed a share buyback programme of up to 12 million shares. This was on top of millions of dollars spent on buying back shares in preceding financial periods and millions spent on life extension capex as well.

Here are all the buybacks during lockdown:

	Shares	Issued share capital	Treasury shares	Total no shares with voting rights

6 March	200,000	289,724,772	7,310,483	282,414,289
13 March	4,125,331	289,724,772	11,435,814	278,288,958
18 March	549,669	289,724,772	11,985,483	277,739,289
1 April	298,632	289,724,772	12,284,115	277,440,657
2 April	5,215,000	286,845,657	14,620,000	272,225,657
30 April	137,971	286,845,657	14,757,971	272,087,686
29 May	62,500	286,845,657	14,820,471	272,025,186

Since its half year results back in February, SLP has bought back around 3.7% of its shares at a weighted average price of around 48p. Today you can buy its shares for less than the company has been paying despite a recovery in operations.

SLP has updated the market twice since…

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Chipspa

12th Jun '20

Hi Jack,

Something I previously always struggled with, was buying high quality companies with already high p/e's, such as Games Workshop (LON:GAW)

I find it hard to get my head around paying high p/e's, fearful I could be overpaying albeit for a great company.

I have found the following Credit Suisse research paper What does a price earnings multiple mean really helpful in this regard and would really recommend people give this a read.

A glance at the table on page 10, gives a feel how high(er) ROIC (above the cost of capital) can really turbocharge what a fair or justifiable level of p/e can be.

Understanding this has helped me purchase a number of high quality companies, including Games Workshop (LON:GAW) which have gone on to consistently increase their value, but which when purchasing always seemed to have uncomfortably high p/e's.

I would certainly be interested hearing of any other research on the matter, or indeed if the bods at Stockopedia could bring their wisdom to bear in regards to how one can equate "paying up" high p/e's for companies with earnings growth and high ROCE.

I would appreciate any thoughts on this.

Kind regards

Chris

Kiewit

13th Jun '20

Thanks for sharing the CS paper

Michael Taylor

14th Jun '20

Good article Jack.

"Then there is the issue of discount rate. What’s a sensible one?"

Often makes me laugh when mining projects give an NPV of a project yet don't mention the discount rate. Or they give a discount rate of 5% for a pre-revenue gold mine in Africa!

Trader Blade

Thanks Chris interesting insight. So are you comparing ROIIC to ROCE? And are you doing this for latest published full accounts? Using the calc for latest GAW data I have ROIIC well below ROCE. Do you agree or have I misunderstood the formula inputs?

The Phoenix

Hi can someone explain the purpose of treasury shares my take is that this is where shares are held after a buy back has been completed and they then drop off the total share count. What is the purpose of holding in treasury though is it so they can be reissued later if needed presumably at lower cost than cancelling the completely and then having to set up and pay for a placing/rights issue if company wants to issue more shares later ?

Happy to be corrected on any of the above.

Thanks

tradermark

High PE's, Mark Minervini has made a personal fortune out of them...

LaughMuBai

15th Jun '20

Hi Clarea,

I'm by no means an expert, but I read this...

'A company issues a share only once; after that, investors may sell it to another investor. When companies buy back their own shares, the shares remain listed as issued, even though they become classified as "treasury shares," because the company may resell them.'

Here are link descriptions/definitions to Issued Shares & Outstanding Shares if helpful.

Great in-depth follow-up to your March Sylvania Platinum (LON:SLP) analysis Jack. A lot of work there thank you. I'm really interested in this one and I appreciate the past is not the future, but nevertheless it does intrigue me...

So as far as I can see it all started at about 30p back in July 2006, peaked at all time highs of ≈ 115p a year later lasting roughly 1.5-years until the 'Great Recession' plummeting to 20p, bounced back to ≈ 55p about a year later keeping somewhat steady for 2-years, then dropping and mellowing to ≈ 10p for 6-years until it's ascent around 2018, glitching COVID-19 and now recovering.

Things presumably came to fruition the year after in 2007 and possibly at their best peak production with the demand and pricing to match — times were good on the market. They never really recovered after the GR eventually riding off into the sunset until later volume activity started to increase around mid 2016 with a 66m spike to rise again. Maybe someone knew something and woke the herd or was just coincidence.

Things certainly look rosy now though not without risks, but I'm curious on thoughts of what the dynamics were like for them back in their heyday, why the declining long pause and how that compares to now?

Anthony127

22nd Jun '20

I hold Sylvania Platinum and certainly think that it represents one of the more compelling examples of value currently on offer. Deducting reported cash from the market cap suggests a PE of circa 2.9. Because the Sylvania Platinum (LON:SLP) forecast earnings for 2021 are slightly below 2020's it no longer qualifies for a PEG. However I think that forecasts for 2021 given current circumstances are fairly speculative and therefore shouldn't I believe be treated as more than a rough estimate.

The supply and demand dynamics for SLP certainly look good with the requirements of Rhodium and Palladium for electric and petrol vehicles. I think the case is less clear in respect of Platinum however I think that its wider use in respect of jewellery, dentistry, plastics, fertilizers and medical equipment should be given a boost as economies begin to reopen. Platinum is also at a relatively low price level historically and I think may have some upside in the near future.

On the debit side I am concerned about the rate of Covid 19 in South Africa which I think is the highest in Africa. Nevertheless the problem appears to be fairly minor compared to that in the UK and Western Europe.

Many thanks if I have it right then thy are never effectively cancelled just stored in a warehouse almost to be called upon later if needed.

William K

23rd Jun '20

Correct. In his book Trade Like a Stock Market Wizard. Minervini regards a low PE usually as a sign of a declining company and a high PE usually as a sign of a growing company.

Quote: "The top 25 performing stocks (in the US) from 1995 to 2005 had an average PE ratio of 33x, ranging from a low of 8.6x to a high of 223x."

It's worth noting that Tesla currently has a PE of 134 and the share price has quadrupled in the last year from $250 to $1000.

Minervini also sees the 'superlow' PE as a red flag. The PE is low for a reason. It certainly does not represent a bargain, at least not for the growth investor.

5th Jul '20

I note that the price of Sylvania Platinum (LON:SLP) has just gone below the 200MA on increased selling volumes. The only recent news is that there has been a share buyback on 1st July. This is the first time (apart from during the crash in February / March) that the price has fallen below the 200 MA in the last two years. I've decided to sell and wait for a sign of recovery before buying back. Does anyone know why the share price has fallen so abruptly?

Momoko Miyamoto

Shakin' the tree

https://www.ft.com/content/c5c...

6th Jul '20

Thanks Momoko. That was my first thought. There have been tree shakes on Sylvania Platinum (LON:SLP) before. This is the most effective one so far. And once prices fall below the 200 MA, they tend to fall lower. My hunch is that I will be able to buy back around 30 pence.

Caper4

I also hold SLP and live in South Africa. The country is coping remarkably well with Covid 19 and has a much stricter lockdown than the UK and many other countries. Deaths so far are incredibly low considering the living conditions of so many disadvantaged people. They are well into winter now and still seem to be on top of the situation.

581k sells vs 51k buys today with firming price. Market makers probably adding to their books.

10th Jul '20

Caper4

Thanks for giving a South African perspective, a little local knowledge is always helpful.

My impression is that Britain is slowly getting a handle on Covid 19 but ought to be better at learning from other countries including Germany and South Korea.

I view SLP as a cyclical value share. Over the last couple of months the market seems to have been a voting machine in respect of Sylvania Platinum (LON:SLP) and has voted it down or sideways. But I think as time progresses the market eventually weighs the merits of companies and that re-openings of global economies will spark the beginning of a new business cycle.

I suspect that the start to the business cycle could be prolonged and stuttering but certainly worth participating in. In the next few weeks I shall be looking at other economically sensitive companies to add to my portfolio.

Laughton

13th Jul '20

Apologies if inappropriate to post here but looks like massive demand for latest Games Workshop (LON:GAW) release - this from one of the independent retailers:-

https://www.goblingaming.co.uk/pages/preorder-update-please-read

turbo

16th Jul '20

"SLP is in excellent financial shape and with $33.8m of cash on the balance sheet (possibly more by now) and no debt. It also has stacks of liquidity, which helps to de-risk it as an investment"

At 43.75p I did think SLP was worth a close look, so I bought some today.

carmensfella

20th Feb '21

Sylvania will be featured on the MelloBash this Monday

https://www.stockopedia.com/content/mello-monday-featuring-stephen-english-jack-brumby-amp-graham-neary-766509/

Sylvania Platinum and Games Workshop: share buybacks and all-time highs

Sylvania Platinum (LON:SLP)

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Jack Brumby

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