In 2023, Anglo American Platinum Limited (JSE: AMS) encountered substantial challenges, with its share price experiencing a notable decline of over 32% throughout the year. Unfortunately, the beginning of the new year mirrored this trend for the world’s largest platinum producer, as its share price continued to plummet by 24% year-to-date. The latest earnings report failed to meet expectations and did little to instil confidence in a potential recovery.
Total revenue for the year saw a significant drop of 24% to R124.6 billion, while adjusted EBITDA shrank by a substantial 67% from R73.9 billion to R24.4 billion. Headline earnings per share (EPS) plummeted by 71% to R53.30 from R185.42, leading the company to slash its dividend by 81% from R115.00 to R21.30. These disappointing outcomes fell short of analyst predictions and raised concerns regarding the company’s ability to navigate the challenging low platinum group metal (PGM) price environment.
Technical
A descending channel has emerged on the daily chart, with the crossing of the 25-SMA (green line) below the 50-SMA (blue line) confirming the bearish tilt in the shorter term. However, the RSI is nearing oversold conditions and could entice buyers to enter the market if a fundamental shift occurs in the metal market.
Currently, resistance at R729.88 prevents a breakout from a channel. Support is established at R680.71 and could become a level of interest as we advance. Any movement below this support could make the channel vulnerable to a breakdown at R646.87, which could steepen the selloff toward a psychological demand zone at R606.63. Neckline support is established at R579.46 and could come into play in the longer term if the current selling pressure persists.
However, a breakout could be triggered if the price clears the R729.88 level in the upcoming sessions. Resistance at R774.00 could present a significant hurdle, backed by the 25-SMA. While a retracement could kick off at this level, any movement higher could confirm the bullish reversal, bringing the Fibonacci midpoint and 61.8% Fibonacci golden ratio into the equation at R841.05 and R879.03.
Fundamental
From the chart below, it becomes evident that the challenges faced by Anglo American Platinum over the last few years have been industry-wide headwinds. Over the last three years, AMS has shed 58.83% of its price, with its competitors, Sibanye-Stillwater (-70.21%) and Impala Platinum (-71.74%) showing similar declines. These rapid declines happened over the same period that the JSE Top 40 index gained nearly 9%, showing divergence in the metal market from the broader stock market. Suppressed PGM prices drive the industry headwinds, as the prices for Platinum and Palladium have fallen by 36% and 58% over the last 12 months. Significant cost pressures and an uncertain macroeconomic outlook add to the challenges and have forced players such as Sibanye-Stillwater to restructure their operations to reduce operating and capital costs. Similarly, Anglo American outlined its plan to lower production in 2024 to save $1Bn in response to the increased market volatility. After its latest report, the company further stated that it could cut around 3,700 jobs across the business in a restructuring to respond to its recent 71% plunge in profit.
While restructuring is unfortunate, the graph below highlights the need for cost-saving actions to be taken across the business. After its revenue peaked in 2021 at R214.57Bn, the company’s top line has shown a clear downward trend. In contrast, its cash operating costs have increased steadily. As a result, profits have declined, and margins have tightened. Its gross profit margin has fallen from 49% in 2021 to 17%, as its headline earnings attributable to shareholders contracted from R79Bn in 2021 to a mere R14Bn. This divergence between rising costs and a contracting top line could be detrimental in the upcoming years if the business does not find a way to reduce operating costs to keep its margins within the desired range. However, it is worth looking at what is causing the top-line decline, and the most significant driver behind the contraction is the slump in PGM metal prices.
Platinum Group Metal sales comprise over 93% of the company’s revenue. Platinum, Palladium, and Rhodium together constitute around 83% of the top line and have shown significant reductions in value over the last few years, as seen in the chart below. The graph shows the average market prices of these metals achieved over the last five years. Rhodium has shown a massive decline from 2021, when the average price was around $19,613/oz, to $6,592/oz in 2023. Platinum has been the most stable among the group, with its price declining from $1,083/oz in 2021 to $946/oz. Platinum accounts for 38% of group revenue and provides some much-needed stability in the PGM market. Finally, Palladium prices declined from their peak of $2,439/oz to $1,313/oz. Overall, the PGM dollar basket price for 2023 was its lowest since 2019 at $1,657/oz.
While the PGM prices were lower, the drop in revenue was partially offset by a 2% increase in PGM sales volume. On the production front, the company produced 6% fewer PGMs in 2023 at 932,000 ounces, while its annual production fell from 4.02M ounces to 3.81M ounces. For 2024, management expects production to fall between 3.3M and 3.7M ounces, reflecting another decline, while its cost per unit is expected to fall between R16,500 and R17,500 per ounce.
Summary
After a challenging year in 2023, Anglo American Platinum Limited kicked off 2024 on the back foot, as its latest earnings report missed estimates. With ongoing pricing struggles in the PGM market and operating costs increasing, the company faces ongoing challenges in the year ahead. With a proposed restructuring that could affect around 3,700 jobs, progress could be made on the cost-saving side. Still, it remains to be seen whether the metal giant can maintain its falling margins and ignite a recovery in its profit, which slumped by 71% over the last year.
Sources: Koyfin, Tradingview, Reuters, Anglo American Platinum Limited, Moneyweb
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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