UBS rates Allkem as a buy but Pilbara Minerals as a sell
UBS believes Pilbara Minerals is overvalued relative to Allkem.
Source: iStock
Mentioned
KEY POINTS
- UBS analysts believe Allkem is undervalued compared to Pilbara Minerals
- Allkem has several projects expected to come online in the next 1-3 years
- UBS remains structurally positive on the sector, and especially on Australian producers.
UBS analysts are Buy rated Allkem (ASX: AKE) but Sell rated on Pilbara Minerals (ASX: PLS) on valuation grounds.
When you line the companies side by side, it kind of makes sense why the investment bank has diverging views for the two ASX-listed lithium heavyweights.
Key stats at a glance
Allkem | Pilbara Minerals | |
|---|---|---|
Market cap | $9.1bn | $15.9bn |
Revenue | US$769.8m (A$1.2bn) | $1.19bn |
Net profit after tax | US$337.2m (A$525.6m) | $561.8m |
Source: Company FY22 data | Table: Market Index
Production outlook
Comparing the two companies from an operational standpoint is a little more complex as Allkem operates several projects that produce both lithium spodumene, carbonate and hydroxide.
While Pilbara Minerals operates just the one hardrock project in Western Australia.
Allkem
Allkem operates the Olaroz lithium carbonate project in Argentina and the Mt Cattlin hardrock project in Western Australia. The company also expects the Naraha plant in Japan to come online in the December quarter, which will produce high value battery grade lithium hydroxide.
In the next year, Allkem expects its production profile to look something along the lines of:
Mt Cattlin: 140,000 to 150,000 dmt of spodumene (FY23)
Olaroz: 25,000t of lithium carbonate (CY23)
Naraha: 10,000t of lithium hydroxide (CY23)
Sal de Vida: 15,000t of lithium carbonate per annum (first production expected in H2 CY23)
Pilbara Minerals
Pilbara Minerals is currently ramping up production at its Pilgangoora Project, targeting 540,000 to 580,000 dmt of spodumene in FY23.
Market outlook
Credit Suisse hosted a call with lithium and chemicals heavyweight Albemarle on Thursday.
"While near-term demand risks increase with respect to growing global recession fears, Albemarle relayed that their client base was more focused on securing supply for 2024-26," said Credit Suisse analysts including Lachlan Shaw.
"On price, they (and the market) struggle to explain high spot prices, putting it down to scarcity premia."
"We remain structurally positive on the sector and particularly so for the Australian producers," the analysts said.
The investment bank was also Buy rated for producers IGO (ASX: IGO) and Mineral Resources (ASX: MIN).
