London, UK, 29 October 2021

Pan African Resources (PAF): Everything falling into place

Pan African's FY21 results were closely in line with our expectations. Mining profit for the full 12-month period was US$128.0m (cf our estimate of US$132.7m - see Exhibit 2), profit after tax US$74.7m (cf our estimate of US$75.1m) and EPS 3.87c per share (cf our estimate of 3.90c). Most striking, however, was the 28.5% increase in the proposed final dividend to ZAR402.2m, or 1.26671cps at the prevailing forex rate. This was above the company's dividend policy guidelines, but reflected management's increasing confidence in the outlook for its operations. Pan African has also announced a share buyback programme to add to investors' returns.

Pan African is cheap relative to both its historical trading record and its peers. Our core valuation of the company is 41.79c/share (30.42p/share) cum-div. However, this stands to rise by an additional 13.5%, to 47.43c/share (34.53p/share), in the event of the successful development of Mintails/Mogale in particular. To this must then be added the value of c 19.2m underground Witwatersrand ounces, which we estimate could lie anywhere in the range of 0.22-5.24c to take the total to 47.65-52.67c/share (34.69-38.34p/share). Alternatively, if Pan African's historical average price to normalised EPS ratio of 8.9x in the period FY10-21 is applied to our FY22 and FY23 forecasts, it implies a share price of 32.15p in FY22, followed by 32.99p in FY23.  

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