Zimplats Holdings Limited

ZIM Details

March Quarter (Q3FY21) Update: Zimplats Holdings Limited (ASX: ZIM) is engaged in the exploration and mining of platinum group metals, gold, silver, and base metals. As of 25 June 2021, the market capitalisation of ZIM stood at ~$2.20 billion. The company reported that the six elements’ (6E) production (elements-palladium, platinum, ruthenium, iridium, rhodium, and gold) for Q3FY21 reduced by 7% on QoQ basis. It recorded a decrease in the total operating cash costs of 1% from the December quarter. Tonnes of ore milled improved by 1% in Q3FY21 on QoQ basis. However, its operating cash costs per 6E ounce raised to US$710 in Q3FY21 due to lower production and inflationary tendencies. ZIM also reported 24 new positive COVID-19 cases in the current period, fully recovered now.

Key Takeaways from 1HFY21: The company posted US$674.94 million of revenue in 1HFY21, up by 79% YoY due to an increase in the average metal price and metal sales volume. It reported an NPAT of US$250.60 million in 1HFY21, up by 209% YoY. The metal production of 6E together stood at 288,310 ounces in 1HFY21, up by 8% YoY. The metal sales volume for 6E was also up by 19% to 301,225 ounces in Q3FY21 on a pcp basis. The Group held a cash and cash equivalents balance of US$226.1 million as of 31 December 2020.

Revenue & NPAT from FY16-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of adverse commodity movements on its profitability and cash flows. It also faces the risk of increased infections due to COVID-19 in Zimbabwe.

Outlook: ZIM expects favourable metal prices to persist for the rest of the year. It aims to achieve the sales and production targets for the rest the year. It is aware of the probable impact of COVID-19 on its operations as infections increased during 1HFY21 in Zimbabwe. The development of Mupani Mine is progressing well ahead of time, and the key infrastructure installation is on track. ZIM targets a complete production capacity of 2.2 Mtpa in August FY25 and US$264 million of budget.

Stock Recommendation: The stock of ZIM gave a positive return of 53.03% in the past six months and a positive return of 105.07% in the past nine months. The stock is currently trading above the 52-weeks’ average price level band of $8.500-$28.750. On a TTM basis, the stock of ZIM is trading at an EV/Sales multiple of 1.1x, lower than the industry (Metals & Mining) median of 2.1x and thus seems undervalued. Considering the decline in operating cash costs, increase in production and sales of 6E in 1HFY21, increase in revenue and NPAT for 1HFY21, and valuation on a TTM basis, we give a ‘Buy’ rating on the stock at the current market price of $20.200, down by 1.175% on 25 June 2021.

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: -

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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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