• Peak profits equal low multiples:   Implats should earn peak profits in FY21 and the current multiples reflect the unusually high profits and cash flows.  Implats is trading on 5.5x our estimate of FY21 earnings an at 3.4x our estimate of FY22 spot earnings of R80.00/share.
  • Dividends a key driver:  Implats’ extraordinary profits in FY21 should spill into FY22 and following the deleveraging of the balance sheet the company should be able to return significant dividends to shareholders.  We currently estimate a 10.2% 12-month dividend yield with significant upside potential if metal prices remain higher for longer.
  • Rhodium is the key driver:  The high rhodium price is a key driver of Implats’ profits.  Rhodium prices have been impacted by strong demand and supply pressures following the converter breakdown at AngloPlats.  While AngloPlats’ have restarted their processing, rhodium has a long retention time in refineries and should only become available in 2Q.  Restocking the supply chain should also support prices.
  • Metal prices should move lower:  We expect the basket price will moderate lead lower by rhodium as production constraints are lifted.  Prices should however remain above long run averages for longer.  Platinum remains at a surplus with palladium and rhodium at deficits.  In the medium term, palladium prices could come under pressure as platinum is substituted for palladium in auto catalysts.  There is however little evidence of that occurring at this stage.
  • Production outlook:  Implats’ production should increase in FY21 (+4%) following the COVID disrupted FY20 as well as some inventory drawdown.  We expect slightly lower production in FY22 (-4%) before the projects at Zimplats and Canada deliver more metal.
  • Few projects to consume cash:  Implats are completing projects in Zimbabwe and Canada with potential projects at Zimplats and Two Rivers.  There are no other large projects on the horizon and assuming no M&A there should be substantial cash to return to shareholders.
  • Share price: We value Implats around R290/share (NPV and mid cycle multiples).  This value coupled with an expected 12-month dividend yield of 10.2% prompt us to start coverage with an Overweight rating.