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Should You Book Profits on This NYSE-Listed Gold Mining Stock – SBSW

Feb 10, 2022 | Team Kalkine
Should You Book Profits on This NYSE-Listed Gold Mining Stock – SBSW

Sibanye Stillwater Limited

Sibanye Stillwater Limited (NYSE: SBSW) is a South African mining firm that owns five gold mines in South Africa: the Cooke, DRDGOLD, Driefontein, and Kloof operations in West Witwatersrand, and the Beatrix operation in southern Free State. It owns and operates extraction and processing facilities at its mines, where gold-bearing ore is processed and beneficiated to yield gold dore, in addition to mining. SBSW has 702.10 million American Depository Shares (ADS) listed and outstanding (each ADS representing four ordinary shares).

Why should investors Book Profits?

  • Macro Headwinds: Gold and interest rates have historically negatively correlated in their relationship. It is not certain, but the gold price rises typically when interest rates fall and fall when interest rates rise. The appeal of a safe haven investment fades in such affluent times, and with interest rates also strengthening the domestic currency, the short-term gold price should fall. Recent market concerns about rising interest rates sooner to battle inflation will pressure the spot gold prices and will affect the company's operating income.
  • Operating at Low Margins: The company is operating at a gross margin of 40.4% in H1FY21 (ended June 30, 2021) compared to the industry median of 56.3%. In H1FY21, the company's EBITDA margin was 44.3%, compared to the industry median of 48.3%. The company's margin will be eroded further if Realized Gold prices continue to plummet.
  • Fall in Return Ratios: The company's ROE fell to 33.0% in H1FY21 from 35.2% in H2FY20. It also reported a decrease in the reinvestment rate from 35.2% in H2FY20 to 21.6% in H1FY21.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

SBSW's share price has surged 13.09% in the past month and is currently leaning towards the mid-band of the 52-week range of USD 11.15 to USD 20.68. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 13.00.

Considering the company's fundamentals, margins pressure, macro headwinds, and current valuation, we recommend a "Sell" rating on the stock at the current price of USD 15.34, down 0.58% as of February 09, 2022, 12:54 PM ET.

3-Year Technical Price Chart (February 09, 2022; 12:54 PM ET). Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.