Macro Factors Supporting the Lithium and Clean Energy Sector

Favourable Government Initiatives to Support Clean Energy

Market Potential of Lithium

Favourable Statistics on Lithium Demand

Constructive Movements in the Commodity Market Manifesting Outperformance

High International Competition and Availability Concerns May Affect Earnings Prospects:

Favourable Production, Export Earnings, and Capex Estimates Substantiates the Sector’s Growth Prospects

Investment theme and stocks under discussion (IGO, LTR, A4N)

After understanding the sector, let us now look at three companies listed on the ASX. The price potential of the companies under discussion has been analysed based on the ‘Price/Book Value’ multiple method.

1. ASX: IGO (IGO Limited)

(Recommendation: Buy, Potential Upside: Low Double-Digit, Mcap: A$7.61 billion)

IGO is engaged in the mining and developing operating assets focused on metals to enable clean energy in Australia.

Valuation

The illustrative valuation model suggests that the stock has a potential upside of 17.89% on 30 June 2022. Moreover, the stock might trade at a slight premium compared to its peers, given the company's achievement in the first and consistent production of battery-grade lithium hydroxide. For valuation, peers such as Iluka Resources Ltd (ASX: ILU), Rio Tinto Ltd (ASX: RIO), Jervois Global Ltd (ASX: JRV), and others are considered. Given the financial inflows from TLEA, successful production of battery-grade lithium hydroxide, well-diversified business portfolio, current trading levels, and upside indicated by valuation, a "Buy" recommendation is given on the stock at the closing market price of $9.940, down by ~1.094% on 30 June 2022. In addition, the stock has delivered an annualised dividend yield of 1.49%.

2. ASX: LTR (Liontown Resources Limited)

(Recommendation: Speculative Buy, Potential Upside: Low Double-Digit, Mcap: A$2.45 billion)

LTR is a battery metals exploration and development company focused on developing its Kathleen Valley project at a standalone mine in Australia.

Valuation

The illustrative valuation model suggests that the stock has a potential upside of 18.58% on 30 June 2022. However, the stock might trade at a slight discount compared to its peers, given no revenue generation and potential exploration risks. For valuation, peers such as Strandline Resources Ltd (ASX: STA), Lake Resources NL (ASX: LKE), Chalice Mining Ltd (ASX: CHN), and others are considered. Given the active exploration activities in place, offtake binding term sheets signed with creditworthy players, positive results from the Buldania Project, current trading levels, upside indicated by valuation, and key risks associated with the business, a "Speculative Buy" recommendation is given on the stock at the closing market price of $1.055, down by ~5.803% on 30 June 2022.

3. ASX: A4N (Alpha HPA Limited)

(Recommendation: Speculative Buy, Potential Upside: Low Double-Digit, Mcap: A$318.19 million)

A4N is engaged in the exploration and development of specialty metals and technology. Its segments include HPA First Project and mineral exploration & evaluation.

Valuation

The illustrative valuation model suggests that the stock has a potential upside of 18.50% on 30 June 2022. Moreover, given high production prospects, the stock might trade at a slight premium compared to its peers. For valuation, peers such as Orica Ltd (ASX: ORI), Clover Corporation Ltd (ASX: CLV), Incitec Pivot Ltd (ASX: IPL), and others are considered. Given the high orders under manufacture, twelve test orders executed & shipped, current trading levels, upside indicated by valuation, and key risks associated with the business, a "Speculative Buy" recommendation is given on the stock at the closing market price of $0.415, up by ~3.750% on 30 June 2022.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

Note: All the recommendations and the calculations are based on the closing price of 22 July 2021. The financial information has been retrieved from the respective company’s website and REFINITIV.  

Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned per the valuation has been achieved and is subject to the abovementioned factors.

---

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.