Growth projects progressing
1H23 RESULT
Need To Know
- Earnings in line with market estimates
- Strong lift in volumes, margins, cash flow
- Progress on growth projects continues
- Lower production guidance at Mt Cattlin for FY23. No impact on longer-term story.
Much of the AKE result was known before today’s report including the lower production guidance at Mt Cattlin (WA) given changes in mining operations. Grade improvement at Mt Cattlin should be story over 2H23 and into FY24.
The result saw underlying NPAT of $US219m vs $US234m market, whilst at the underlying EBITDA line the result was $US433m vs US$422m market. No dividend was declared as expected.
The result was primarily driven by lithium prices which drove revenue growth of 3x (2H22). Production volumes should expand over FY24 as mining operations at Mt Cattlin (WA) and Olaroz (Argentina) continue to grow production.
Cash flow lifted close to 700% on 1H22, whilst net debt $US552m (pre-released) was up +32% on 2H22 given project spend.
Overall, there was little additional new information from the result. The focus by investors over 2H23 will be on the return of production-grade volumes at Mt Cattlin and progress on growth projects.
Investment View
AKE's share price is down over 25% since it peaked in 4Q, much of this price move can be attributed to AKE mining issues slowing production growth. Share price underperformance vs peers is notable.
We can’t say for certain that mining production run rates will improve in 2H following the further downgrade to Mt Cattlin volumes guidance earlier this week.
Offsetting this is the fact global supply has also run into difficulties with ~1% of global lithium supply running into production delays so far in 2023.
Lithium prices are likely to remain a significant influence on the AKE share price. We are more cautious about lithium prices short-term given prospects of additional capacity incoming online over 2023, and the global lithium battery supply chain that is very well stocked.
We rate AKE a HOLD. For investors with a longer-term horizon (+12 months) the current share <$12.50 holds appeal.
Stock Overview
Share Price
Company Overview
Allkem is a lithium producer with assets in WA and Argentina. It has expansion projects in Argentina and Canada. It has a lithium hydroxide plant in Japan.
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