Based in South Africa, precious metals mining company Sibanye Stillwater Limited (SBSW) has mining operations across the African continent and the Americas. Given its extensive operations in metal-rich regions across the world, SBSW is one of the biggest mining companies in the world, with a market capitalization of $13.50 billion. Shares of SBSW have risen 197.9% over the past year, and 17.2% year-to-date.
The rising demand for silver in 2020 from multiple avenues has been the key driver for the stock. With numerous start-ups emerging in the electric vehicle (EV) space, as well as rising demand for semiconductors, silver has accrued significant demand from the industrial sector even amid the pandemic. With the EV companies expanding their product portfolio to attract customers in a highly competitive market, as well as semiconductor factories operating at full capacity, the demand for silver is projected to keep rising in 2021.
Here’s what could drive SBSW’s performance in the near term:
Soaring Silver Prices
Silver is expected to outshine gold in terms of price-performance to emerge as one of the highly demanded precious metals in the markets. As the best conductor of electricity, silver has been generating derived demand from the semiconductor and electric vehicle markets. Along with the demand for silver as a safe-haven asset, a significant proportion of the demand came from the EV and semiconductor industry last year. The London Bullion Markets Association expects the median price of silver to rise 38.7% in 2021 to reach $28.50 per ounce.
Historically, the prices of precious metals tend to decline amid market recovery, as people bet on the soaring equity markets. However, silver has defied the market trends to reach its eight-year high in February. The Silver Institute expects the industrial demand for silver to increase 9% year-over-year to reach a four-year high of 510 million in fiscal 2021. Segment demand from electronics and 5G technology is expected to rise 7% from the year-ago value.
Impressive Growth and Profitability
SBSW’s revenues and EBIT have increased at CAGRs of 40.5% and 287.8%, respectively, over the past three years. The company’s tangible book value has risen at a CAGR of 51.7% over the past three years, while total assets have increased at a CAGR of 20.8% over this period.
SBSW’s trailing-12-month gross profit came in at $3.46 billion, translating to a gross profit margin of 39.88%. The company reported a net income of $1.99 billion over the past year, indicating a 23.01% trailing-12-month return on sales. Its trailing-12-month net operating cash flow and levered free cash flow of $1.96 billion and $932.54 million, respectively, indicate robust liquidity.
The company’s trailing-12-month ROE, ROA, and ROTC of 59.73%, 21.86%, and 35.71% are significantly higher than the respective industry averages.
Value Stock
In terms of non-GAAP forward price-to-earnings, SBSW is currently trading at 6.23x, 61.3% lower than the industry average of 16.11x. The company’s forward EV/EBITDA and price-to-sales ratios of 2.66 and 1.13 compare favorably with the respective industry averages.
Additionally, SBSW’s forward price/cash flow multiple of 3.24 is 65.7% lower than the industry average of 9.47.
POWR Ratings Reflect Rosy Prospects
SBSW has an overall rating of B, which equates to Buy in our overall POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
SBSW has a grade of B for Value, Momentum, and Growth. The stock’s impressive growth trajectory and relative undervaluation justify the Growth and Value grades. SBSW’s stellar share price gains account for the Momentum grade.
Of the 54 stocks in the Miners – Diversified industry, SBSW is ranked #4. In addition to the grades I’ve highlighted, you can get SBSW Ratings for Stability, Sentiment, and Quality here.
Click here to view the top-rated stocks in the Miners - Diversified industry.
Bottom Line
Biden’s proposed infrastructure bill has immense implications for the silver industry. Given the imminent focus on ‘clean’ energy and the EV industry, the demand for silver should rise significantly. Given, SBSW’s earnings growth potential, the stock has plenty of upside left.
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SBSW shares were trading at $18.17 per share on Friday afternoon, down $0.45 (-2.42%). Year-to-date, SBSW has gained 18.55%, versus a 9.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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