RBC Capital Markets has initiated coverage of Sylvania Platinum (AIM:SLP), the AIM-listed platinum group metals producer, with an Outperform rating and a price target of 175p, implying 90% upside from the current share price of 92p.
The bank's investment case centres on what it describes as a systematic mispricing of the stock, which trades at 0.6x net asset value and a 20% free cash flow yield on 2027 estimates, valuations it says are more consistent with a distressed junior than a high-margin, cash-generative business.
Sylvania extracts platinum group metals (PGMs, which include platinum, palladium and rhodium) from the waste material produced by chrome mines in South Africa, operating seven plants that process both old waste dumps and fresh chrome mine output.
RBC acknowledges the central bear case: roughly half the current feed comes from finite waste dumps expected to run down within five to seven years, creating a production cliff after 2030.
The broker argues investors are discounting the quality of the remaining business, which it says generates a 13% free cash flow yield on spot prices from the longer-life current arisings and run-of-mine feed streams alone.
The Thaba joint venture, a new operation processing chrome waste from the Limberg mine that has just reached steady state, is expected to add 26% to production on an equivalent-ounce basis and could serve as a blueprint for further growth.
RBC forecasts dividend yields averaging 14.4% over the next three years as capex falls sharply and cash generation accelerates.