Evening Wrap: ASX 200 rallies, Woodside bounces 4.8%, Liontown bid brings life back to lithium stocks

Lithium stocks green across the board after Liontown received an unsolicited $2.50 bid from Albemarle, energy stocks bounce after oil prices rally 5% overnight, Australian retail sales level off in February as shoppers reign in discretionary spending, trades are piling into bullish gold bets and a few Macquarie notes of interest.

Let's dive in.

ASX 200 Session Chart

ASX 200 rallies in the first hour of trade and closes a little off session highs (Source: Market Index)

Markets

A pretty positive session led by Woodside, banks and a bunch of lithium stocks. A few more insights below.

• Energy stocks rallied after oil prices surged 5.3% overnight

• Materials outperformed thanks to a broad-based rally among lithium stocks, which was triggered by an unsolicited takeover offer for Liontown (+56%)

• Financials were generally higher amid constructive bank sector headlines in the US, whereby First Citizens Bank acquired the failed SVB

Economy

Australian retail sales rose 0.2% month-on-month in February after a 1.8% rise in January.

• Ben Dorber, ABS head of retail statistics, said retail sales rose modestly in February and appear to have leveled out after a period of increased volatility over November, December and January.

• “On average, retail spending has been flat through the end of 2022 and to begin the new year.”

• Spending in food-related industries has continued to grow modestly in February while non-food industries continued to reflect a pullback in consumer discretionary spending 

Latest news

Market Insights

Albemarle's bid revives lithium stocks

Albemarle has knocked on Liontown's door for a third time in four months with an unsolicited, non-binding offer of $2.50 per share or a 64% premium to the stock's last close.

You can find my piece about the takeover as well as observations about lithium shorts, M&A and rejecting the offer here.

After pondering about the takeover a little more, here's some more food for thought:

Short interest: Several lithium stocks are among the top most shorted stocks on the ASX. Names like Core Lithium, Liontown, Sayona, Vulcan Energy and Lake Resources all currently have short interest of more than 6%.

Intraday bids: Pretty much all lithium gainers today experienced strong intraday price action. Core Lithium closed 15.4% higher but rallied 7.8% from its open price. Allkem opened up 1.8% but closed 13.7% higher. You get the gist.

Covering shorts: It's difficult to gauge whether or not the intraday rally was genuine buying or a whole lot of short covering. And on that note, does short covering keep going for a few more day(s), where we something like a three day rally into a pullback into who knows what? (Hypothetically speaking)

A floor: Albemarle made non-binding proposals for Liontown on 3 March at $2.35 and last October at $2.20. These bids are offering cash in an environment where everybody is saying 'cash is king'. They seem pretty adamant on trying to buy the company but Liontown management viewed this as "opportunistic timing ... coinciding with recent softness in companies exposed to the lithium sector." Does this somewhat support a floor for lithium names, many of which are down 20-30% from recent highs?

Gold bets are surging

March is set to be the first month of net inflows for gold ETFs since May last year while volumes for call options tied to the funds are approaching record levels, according to the Financial Times.

In the last three sessions, gold has eased from highs of US$2,009 an ounce and back towards US$1,950.

Nevertheless, the amount of bullish positioning sure makes the gold trade that much more interesting.

Source: Bloomberg, FT

Interesting news and movers

Trading higher

• +68.5% Liontown Resources (LTR) – Albemarle takeover proposal

• +30.8% United Malt (UMG) – Indicative proposal from Malteries Soufflet

• +12.9% Strandline Resources (STA) – Fourth HMC shipment

• +9.0% Paladin Energy (PDN) – Upgraded by Jefferies

• +8.9% Chalice Mining (CHN) – Gonneville resource increase

• Oil and gas sector move: Beach Energy (+7.8%), Woodside (+4.8%), Santos (+3.1%)

• Coal sector move: Terracom (+7.1%), Whitehaven (+6.1%), Coronado (+4.6%), New Hope (+4.2%)

• Lithium sector move: Global Lithium (+20.5%), Argosy (+16.3%), Core Lithium (+15.4%), Allkem (+13.7%), Pilbara Minerals (+11.9%), Sayona (+10.8%)

Trading lower

• -25.4% Kingsgate Consolidated (KCN) – Completes capital raising

• Gold sector move: Bellevue Gold (-4.0%), Perseus Mining (-1.7%), Evolution Mining (-1.4%)

Broker updates

Macquarie notes: 

Ampol (ALD): Outperform with $39.45 target price

• “The FCCU outage comes at a disappointing time, given gasoline cracks have significantly improved – however it is relatively contained, and does not materially detract from dividend yield or our investment case.”

Allkem (AKE): Outperform with $17.00 target price

• “The 27% resource upgrade at Olaroz is impressive with drilling to date indicating potential future upside.”

• “At the end of January, Stage 2 of Olaroz reached 97% completion, with pre-commissioning activities underway.”

• “Updates on AKE’s key development projects at Sal de Vida, Olaroz and James Bay present key near-term catalysts for AKE.”

Premier Investments (PMV): Outperform with $30.50 target price

• 1H23 sales up 17.6% to a record $905.2m which drove 4.6% EBIT growth to a record $221.8m

• Total sales in early 2H23 are up 7.7%, even though PMV is cycling 6.2% sales growth in the first five weeks of 2H22

• “1H23 further validates its track record in robust operating performance, supporting our preference for PMV in the sector.”

Rare earths market: Expects NdPr market to remain tight despite small surplus in the near term

• Lynas (LYC): Neutral with $6.80 target price

• Iluka Resources (ILU): Outperform with $12.30 target price

• Hastings Tech (HAS): Outperform with $3.60 target price

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