Company Overview: Zimplats Holdings Limited (ASX: ZIM) is mainly involved in producing platinum group metals (PGMs) and associated metals like nickel, gold, copper, cobalt, and silver. Impala Platinum Holdings Limited holds 87% shareholding of ZIM, and the remaining 13% is retained by independent shareholders. The Company’s majority-owned operating subsidiary is Zimbabwe Platinum Mines (Private) Limited, is engaged in mining and processes high-quality metal products from the ore bodies located on the Great Dyke in Zimbabwe.

ZIM Details

Key Takeaways from FY21 Results:

• Rise in Revenue: For the year ended 30 June 2021, ZIM reported total revenue of US$1.35 billion, up 56% on the previous year, mainly due to the increase in the prevailing average metal prices.
• Increase in Operating Cash Costs: Operating cash costs per 6E ounce stood at US$661 per ounce in FY21, up 8% on FY20, due to a deterioration in 6E head grade and recovery, an increase in revenue-indexed expenditure and COVID-19 administration costs.
• Rise in Operating Cashflow: Net cash generated from operating activities grew to US$453.1 million in FY21, compared to US$258.4 million in FY20.
• Increase in Cash Balance: As at 30 June 2021, the company had cash of US$344.81 million, up from US$135.8 million as at 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Update on Capital Projects: During FY21, the company spent US$159.1 million on its capital projects, including stay-in-business, replacement and expansion projects. The Board has approved the implementation of the Bimha and Mupani mines upgrade and these upgrades are scheduled for completion in 2023 and 2028, respectively. As per the latest update, the redevelopment of Bimha Mine is largely complete and the development of Mupani Mine is progressing well and remains on schedule.

Key Metrics: EBITDA margin for FY21 stood at 65.7%, up from 54.5% in FY20. Net margin for FY21 stood at 41.6%, up from 30.10% in FY20. Current ratio for FY21 stood at 7.46x, up from 4.61x in FY20, demonstrating that the company has improved its ability to pay short-term obligations. The company had nil debt-to-equity ratio in FY21.

Liquidity and Profitability Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 89.25% of the total shareholding, while the top four constitute the maximum holding. Impala Platinum Holdings Ltd and Allan Gray Proprietary Limited are holding a maximum stake in the company at 87.00%  and 1.11%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Key Risks

• Foreign Currency Risk: ZIM is exposed to the risk related to the fluctuations in exchange rate of foreign currencies like Zimbabwean Dollar and South African Rand.
• COVID-19 Uncertainties: ZIM is exposed to the risks and uncertainties of COVID-19 pandemic as it causes threat to the health and safety of employees and has the potential to disrupt the company’s operations.
• Fluctuations in Metal Prices: The company is exposed to the risks related to the fluctuations in the prices of metals as it could impact its financials.

Outlook: Looking ahead, the company is focused on ramping up the Bimha Mine upgrade to achieve full production capacity in FY2023. Further, the company is also progressing the development of Mupani Mine that has a design capacity of 2.2Mtpa, which is expected to be achieved in September 2024 at a total estimated cost of US$264 million. ZIM is also planning for the expansion of the Phase 3A concentrator, which will increase the company’s production capacity by 0.9Mtpa.

Valuation Methodology: EV/Sales  Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:  The stock has corrected by ~10.59% in the last one month and is currently trading higher than the average 52-week price level band of A$8.75 and A$28.75. The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight premium to its peers, considering the expected benefits from the ongoing capital projects and modest outlook. For the purpose of valuation, peers such as Sandfire Resources Ltd (ASX: SFR), St Barbara Ltd (ASX: SBM), Resolute Mining Ltd (ASX: RSG), and others have been considered. Considering the company’s improved financial performance in FY21, rise in dividends, decent outlook, and valuation, we give a “Buy” rating on the stock at the current market price of $20.430 as on September 22, 2021, 11.30 AM (GMT+10), Sydney, Eastern Australia.

ZIM Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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