Growing fears over the coronavirus means that investors need to take steps to protect themselves. I reckon Sylvania Platinum (LSE: SLP) is a sound way to achieve this.
Sentimental shiny metals always experience frantic buying in times of high tension like this. Gold’s gallop above $1,670 per ounce and to fresh seven-year highs this week has commanded plenty of attention. But the platinum group metals (or PGMs) have also soared on high safe-haven demand.
Platinum itself has soared through the $1,000 per ounce marker for the first time since 2018 in recent weeks. Palladium, which has doubled in value over the past 12 months just burst to new record peaks above $2,700. And rhodium, which has burst through the $12,000 barrier for the first time has risen around 500% from the same point in 2019.
Virus fears to persist?
It’s no shock to see Sylvania’s share price boom in response. It’s up 50% since the beginning of February alone as the global spread of the coronavirus has rocked investor nerves. And it could gain much more ground in March.
Global chief executive officer at UBS, Mark Haefele, commented that “the incubation period of the virus [means] the next two weeks will be critical in determining the extent of the outbreak, the steps authorities are willing and able to take to contain it, and the economic effect of those measures.”
Other analysts believe that markets will remain tough for some time longer. Michael Hewson of CMC Markets notes that “for now, there appears little prospect that financial markets look likely to settle down in the short term, which means investors will have to get used to an extended period of uncertainty and volatility.”
Fresh Brexit bother
It’s not just coronavirus-related alarm that could bolster demand for fight-to-safety assets in the coming weeks either. Tension over the Brexit process was a significant driver of gold and other precious metal prices in 2019 and could continue to be so.
The start of tense trade talks between Britain and the European Union will officially begin on March 3. But terse comments from both sides already suggest that things could prove bumpy. Just today German Europe minister Michael Roth urged the British government to “keep your promises” concerning previous agreements on the Northern Ireland border
This follows cautious words from French premier Emmanuel Macron at the weekend too. He warned that it could prove difficult to hammer out a trade deal by the end of the year given the short time frame and range of difficulties that need to be addressed. Under UK law, a failure to create such a deal will mean that Britain will embark on a Hard Brexit at the end of 2020.
Growth + dividends
With safe-haven metal demand expected to remain solid, City analysts expect Sylvania’s earnings to shoot 229% higher in the fiscal year to June 2020. This results in a rock-bottom forward P/E ratio of 3.7 times.
It leads to predictions of more dividend growth, too and therefore a bulky 7.7% dividend yield. Sylvania has been having some issues on the production front recently. Indeed, second-quarter production dropped 8% to 19,206 ounces from the prior three months as power outages and water shortages hit. Still, these troubles are reflected by that low earnings multiple in my opinion. I’d buy it today on the likelihood of solid metals prices in the weeks and months ahead.