One to watch: Pan African Resources

Published on Thursday 9 June 2011 21:23

PAN African Resources boasts a 100koz/year gold mine in South Africa. It is aiming to expand output to some 120koz/year over the next year while also building a platinum group metals project that could see cash flow increase by 50 per cent from end 2011.

The company is small, but very profitable and is funding all the current growth from internal cash flows. The company has no debt and is also a regular dividend payer – yielding just over 3 per cent at present. The combination of solid, self-funded growth and strong cash flows would also make this an ideal takeout target for larger firms aiming to improve profitability.

Pan African Resources trades on a P/CF multiple of only 5x. This compares to a usual sector average trading range that varies between 5x and 15x. We believe delivery on the promised growth by year-end should see the stock re-rate higher. Our DCF-derived fair value is 16p with the stock currently trading in the order of 10p.

Pan African Resources

11p +0.25p

Scotsman says BUY

• RBC Capital Markets acts as Aim nominated adviser and broker to Pan African Resources. Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should reliance be placed on these views when making investment decisions. Past performance is not a guide to the future.

BROKER SNAPS

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