BROKERS’ NOTES: Buy Exxaro and leave the PGM miners alone

Seleho Tsatsi, resource analyst at Anchor Capital 

BUY: Exxaro 

The iron ore price has increased to $124 a ton and Exxaro has a large exposure to this commodity through its 21% shareholding in Sishen Iron Ore Co. Though export coal is a small proportion of its business, we’ve seen the coal price stabilise over the past month or two. Eskom, a major client of Exxaro’s coal business, supplies a stable income stream to the company. Exxaro is trading at a low valuation multiple, which has always been the case. But after last year’s very strong earnings, due to record thermal coal prices, it now seems it is finding a sustainable level of profit. We estimate Exxaro to trade at a double-digit dividend yield and low p:e multiple. It just looks quite cheap. 

SELL: PGM miners

The basket price of platinum group metals (PGMs) is under severe pressure, especially rhodium and palladium. Having said that, the PGM basket price is still higher than in 2019 in rand and dollar. Nevertheless, the earnings outlook for PGM miners has changed dramatically. We estimate that a meaningful proportion of the sector is loss-making at the moment. The share prices of many PGM miners have come down a lot, in many cases by more than 50%. We still think, in a few cases, these shares are pricing in higher PGM basket prices than where we are today.