Northam Platinum earnings plummet

Key takeaways

1. Significant Revenue and Profit Decline: Northam Holdings experienced a marked decrease in sales revenue by 25.5% and operating profit by 73.3% for the six months ending December 2023 compared to the previous year.
2. Sharp Drop in Profitability Metrics: Earnings per share and headline earnings per share have seen dramatic reductions—91.4% and 92.5%, respectively.
3. Resilient Shareholder Returns Amidst Financial Downturn: Despite the downturn, Northam Holdings declared an interim gross cash dividend of 100.0 cents per share.
4. Contraction in EBITDA Performance: There was a 68.1% decline in EBITDA from the previous year, with the EBITDA margin also witnessing a substantial decrease.

Financials

Northam’s condensed reviewed interim financial results for the six months ending 31 December 2023 show a challenging period for the company, marked by a notable decline in several key financial metrics, contrasting with the previous year's performance.

The decrease in sales revenue from R20.1 billion in December 2022 to just under R15 billion in December 2023, amounting to a 25.5% drop, signals pressing market or operational challenges. Similarly, the operating profit has taken a significant hit, plummeting by 73.3% from approximately R9.1 billion to R2.4 billion. This drastic reduction has severely impacted the operating profit margin, which has contracted from 45.1% to 16.1%, a sharp 64.3% variance.

From an EBITDA perspective, the figures also reflect a considerable contraction, with a 68.1% decline from nearly R10 billion to around R3.2 billion. The EBITDA margin has similarly fallen, from 49.5% to 21.1%. This indicates a less favourable earnings before interest, taxes, depreciation, and amortisation performance, further highlighting the challenges faced during this period.

Dividend

Investors might find solace in the resilience shown through the declaration of an interim gross cash dividend of 100.0 cents per share, especially when compared to the preceding period where no dividend was declared. However, the stark decline in earnings per share, from 1,596.2 cents to 136.5 cents, and headline earnings per share, from 1,608.5 cents to 121.4 cents, underscores significant pressure on profitability. The decision to declare a dividend could be viewed as a strategic move to maintain investor confidence. However, it also raises questions about the company's approach to capital allocation, especially in light of its financial performance.

Broker ratings and long-term price target

A consensus of 9 analyst estimates sourced from Refinitiv data (as of the 1st of March 2024) suggests a long-term buy for Northam Platinum Group. A mean of these analyst’s price targets suggests a long term (12 month) fair value of 16288c for the stock.