Pilbara Minerals: A turbulent share price response to a remarkable 1,091% jump in earnings

A 1,091% jump in earnings sounds like the perfect headline to send a stock soaring as the market opens. But what happens when it's all in-line with expectations?

Pilbara Minerals (ASX: PLS) posted a record half-year FY23 result after hours on Thursday. Unsurprisingly, the stock gapped up 4.0% as the market opened on Friday. As for the rest of the day, its share price has been all over the place, ranging from breakeven to a revisit of session highs.

In this piece, we'll review the half-year results and take a look at why the share price is so choppy.

Pilbara Minerals intraday chart (Source: TradingView)

Pilbara Minerals first-half key results

Operational metrics:

• Spodumene concentrate production of 309,255 dmt, up 83%

• Spodumene concentrate shipped of 286,876 dmt, up 68%

• Average realised selling price of US$4,993/dmt, up 305%

• Unit operating cost (CIF) of $1,136/dmt, up 70%

Financial metrics:

• Revenue of $2.18bn, up 647%: In-line with analyst expectations of $2.2bn

• EBITDA of $1,811.5, up 1,091%: Slight miss on expectations of $1.85bn

• Net profit of $1.24bn, up 989%

• Cash balance of $2.23bn vs. $592m a year ago

• Interim dividend of 11 cents per share

FY23 guidance:

• Upgraded full-year production to 600-620,000 dmt from 540-580,000 dmt

• Unit operating cost to $580-610/dmt

• Capex of approximately $460m

Result-related things you should know

Supercharged earnings from: On top of strong lithium prices, PLS achieved improved offtake customer pricing outcomes following negotiations and superior pricing from cargos sold via its Battery Metals Exchange platform.

That's a lot of cash: PLS has a market cap of around $12.7bn. With a $2.23bn cash balance, effectively 17.6% of its market cap is cash.

More dividends to come: The 11 cent dividend represents a yield of approximately 2.4% (assumes share price of $4.60). PLS said its targeting a dividend payout ratio of 20-30% of free cash flow.

Focus on value: PLS has a lithium chemical facility (JV with POSCO) in South Korea that's expected to hit commissioning status in 4Q23.

Hydroxide tolling paying the goods: Earlier this month, PLS announced a 15,000 tonne spodumene sale using a new commercial model that leverages lithium hydroxide prices. The results presentation notes: "Based on January's pricing for lithium hydroxide, pricing for the cargo ... would be aligned with the most recent price received and published by Pilbara Minerals on the BMX platform on 15 December 2022."

What does that mean: Lithium prices have come off recent highs, but it appears that the hydroxide tolling agreement is able to achieve superior prices. The 15 December reference price suggests they sold spodumene in January at US$7,552/dmt.

Why the choppy trade

Reporting season is all about expectations. Some good examples of this include:

Graincorp: It posted an FY23 earnings guidance, expecting full-year EBITDA to be $470-530m from $703m in FY22. Sounds pretty bad right? Well it was actually quite a substantial beat against market expectations of $434m. Still, it's a lot to digest. The stock closed 2% higher on the day of the announcement but rallied as much as 6.6%.

Qantas: First-half profits was a complete U-turn from last year, coming in at $1.4bn vs. a $1.2bn loss. Though this was largely in-line with expectations. Underlying EBIT of $1.54bn was a little soft compared to expectations of $1.57bn. The stock was up around 30% from October lows, so what happened on earnings day? It flopped 6.8%.

Pilbara Minerals is caught somewhere in the middle. The results read well at face value (I mean, 989% net profit growth c'mon) but also in-line with expectations.

At the same time, fellow lithium peers Mineral Resources (ASX: MIN) and Allkem (ASX: AKE) both posted half-year results that missed expectations. Both share prices fell as the market opened on Friday but quickly recovered from session lows, somewhat in-line with Pilbara Minerals' price action.

Allkem intraday chart (Source: TradingView)

Approaching blue-chip status

Interestingly, Macquarie expects Pilbara Minerals to post an adjusted net profit of $2.75bn for FY23. That would value the stock at a price-to-earnings ratio of just 4.6 (based on its current market cap).

The broker also expects a full-year dividend of 35 cents per share, which would reflect a yield of approximately 7.8% (again, based on today's share price).

Adjusted net profits are forecast to climb to $3.47bn in FY24 and $2.69bn by FY25 as higher production offsets a decline in lithium prices.