An ‘exceptional’ FY23 performance from Pilbara Minerals (ASX: PLS) – where lithium production increased 64% and net profits jumped 326% to $2.4 billion – has triggered quite the opposite share price reaction, down almost 15% in the last two sessions.
The strong result versus tumbling share price scenario has left a lot of investors scratching their heads.
In this piece, we’ll break down all the moving parts to the result, what triggered the selloff and where to go from here.
Operations:
Spodumene production of 620,100 tonnes, up 64%
Unit operating cost of $613/dmt, up 11%
Spodumene sales of 607,500 tonnes, up 68%
Average realised price of US$4,447/tonne
Financials
Revenue of $4.06bn, up 242% vs.the $4.08bn expected by analysts
EBITDA of $3.32bn, up 307% vs. $3.34bn expected
Underlying net profit of $2.28bn, up 329% vs. $2.28bn expected
Final dividend of 14 cents per share
FY24 Guidance
Spodumene production between 660-690,000 tonnes
Unit operating costs between $600-670/dmt (US$390-436/dmt)
Capital expenditures of:
Growth capex $490-540m
Mine development $140 -160m
Sustaining capital $75-85m
Projects and enhancements $170-190m
“FY23 results, FY24 production, and FY24 cost guidance were in line with expectations however capital expenditure guidance was higher than expected,” Macquarie analysts said in a note last Friday.
“PLS reported total capex guidance of $875-975m in FY24 which was significantly higher than our previous estimate of $557m.”
At the midpoint, FY24 capex has come in 66% higher than expected. This has also created uncertainty about the company’s FY25 capex and as we all know, markets hate uncertainty.
“Due to the higher than expected capex in FY24, we increase our capex to A$935m in FY25 (previously ~A$462m) to account for the remainder of the P1000 project expenditure and "sticky" cost inflation,” the analysts said.
“During the June reporting season, we note many miners have flagged that inflation pressures are expected to be sticky,” says Macquarie.
But it’s not just miners. And higher-than-expected costs have had a substantial impact on company share prices this reporting season. Some interesting examples include:
NextDC (ASX: NXT) FY23 guidance:
Revenue and underlying EBITDA guidance unchanged
Capex guidance upgraded to $620-670m from $380-420m
Capex guidance is 66-134% higher than Goldman Sachs, Morgan Stanley, Citi and Goldman Sachs forecasts
Shares opened 5.95% lower as the market opened on Monday, 28 August (day of the result)
On the flip side (and in an entirely different sector), Magellan (ASX: MFG) FY23 results and FY24 guidance:
FY23 Net profit down 57% to $174.m, in-line with the $174.1m expected by analysts
FY23 expenses of $121.3m vs. $129.7m expected by Goldman Sachs
FY24 expenses guidance of $95-100m vs. $128.4m expected
Shares finished 13.3% higher on the day of the result (18 August)
Capex has become an industry-wide problem but does this alter the otherwise bullish lithium story?
“We don’t think the story has changed looking through FY24 estimates [of] single digit free cash flow; Pilbara Minerals is operationally ahead of peers, has a Tier 1 asset and a war chest of +A$3.4bn with the option to buy-back stock,” said Citi analysts.
While the underlying story remains the same, Citi trimmed its target price to $4.80 from $5.10 with a Neutral rating.
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