Yahoo Finance Questor: does the platinum price tell us that inflation will return? Tharisa makes a good hedge
This column is no great chart-watcher, preferring fundamental analysis over the study of technical patterns in asset prices, but every once in a while a chart is so startling that it demands attention.
One such right now is the chart of the price of platinum, which is making its sixth attempt in six years to climb sustainably above the $1,000-an-ounce mark.
Should the metal succeed, it would break a 10-year downward trend from a peak of around $1,800 an ounce, give a lift to producers of platinum group metals (PGMs) such as South Africa’s Tharisa, and raise the wider issues of whether maybe, just maybe, the global economy is recovering and inflation is poised for a comeback.
First assessed more than four years ago at 92.5p, Tharisa is now offering us a small capital gain to top up the smattering of dividends it has paid. Pleasingly, the firm has just restored dividend payments after a year-long fallow spell and last month’s full-year results hinted at gathering momentum at the company, whose prime asset is a 74pc interest in the Tharisa mine in South Africa.
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Sagging platinum prices dragged profits lower in 2018 and 2019, and forced that halt to dividend payments, but sales in the year to September rose by 18pc and pre-tax profits nearly six-fold as good cost control and the business’s natural “operational gearing” took effect.
Output of PGMs rose by 1.7pc to 142,100 ounces and chrome concentrate production advanced by 3.9pc to 1.34m tonnes. Better still, management stuck to its near-term production goals of 200,000 ounces and 2m tonnes respectively, so the combination of higher volumes and rising prices could boost profits and cash flow.
The latter was held back last year by investment in net working capital, but net debt is limited, the outflow on trade receivables should reverse and the $0.04-a-share dividend looks well underpinned to provide the welcome bonus of a yield of 2.7pc.
It seems bizarre to be talking about the return of inflation after more than a decade of low growth, low inflation and low interest rates. It may not happen either. But rampant deficit creation by governments, ongoing quantitative easing programmes from central banks and a double-digit percentage surge in money supply growth in the US and Britain, to name but two, suggest it is not as outlandish a concept as it seems.
Shares have outperformed commodities massively for a decade, but commodities held the upper hand for the first 10 years of this millennium, so we may be overdue another trend reversal.
Inflation could be one possible trigger for that and while history is not guaranteed to repeat itself, commodities have tended to do well in such an environment, particularly relative to cash, so miners such as Tharisa feel as if they have a useful role in a balanced portfolio as an inflation hedge.
Questor says: hold
Ticker: THS
Share price at close: 112.5p
Update: Sanderson Design Group
Any misgivings that investors had about Walker Greenbank’s change of name to Sanderson Design Group last month should have been at least partly assuaged by last week’s upbeat trading update.
As has been the case with so many firms related to home improvements, Sanderson has seen demand improve in the second half and branded product sales were higher year-on-year in October and November. As a result, earnings in 2020 will now comfortably exceed management’s previous expectations.
The pandemic means there are still many uncertainties, but the balance sheet is strong enough and the valuation lowly enough to merit further patient support.
We now have a small gain on the stock and momentum may be building.
Questor says: hold
Ticker: SDG
Share price at close: 87p
Russ Mould is investment director at AJ Bell, the stockbroker
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