Livent: production capacity increased, lithium prices increased (NYSE:LTHM)

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Livent Corporation (New York Stock Exchange:LTHM) share price rose 44% in the past month as lithium carbonate prices rose again. The company’s financial results in the third quarter of 2022 were strong and the company expects its adjusted EBITDA for the full year 2022 between $350 and $370 million, compared to an adjusted EBITDA of $70 million in 2021. Due to rising lithium carbonate prices and growing demand for lithium batteries (as a result of increased sales of electric vehicles ), Livent’s financial results in the coming quarters will be strong. I am optimistic about LTHM.

Quarterly results

In its third quarter 2022 financial results, Livent Corporation reported revenue of $232 million, compared to third quarter 2021 revenue of $104 million. LTHM’s cost of sales increased from $85 million in the third quarter of 2021 to $112 million in the third quarter of 2022. The company’s gross margin increased 561% year over year to $119 million in the third quarter of 2022 (from $18 million in the third quarter of 2021). LTHM reported a net income of $78 million, or $0.37 per diluted share in 3Q 2022, compared to a net loss of $13 million, or $0.08 per diluted share in 3Q 2021. Livent’s Adjusted EBITDA increased by 640% year over year to $111 million in the third quarter of 2022 (from $15 million in the third quarter of 2021). Company cash provided by operating activities in the first nine months of 2022 was $328 million, compared to $41 million in the first nine months of 2021. Due to strong revenues, LTHM’s net debt decreased by $127 million on December 31, 2021 to $44 million on September 30, 2022. The company’s total assets increased 67% to more than $2 billion on September 30, from $1.2 billion on December 31, 2021. LTHM’s cash and cash equivalents at the end of the third quarter of 2021 were $195 million. It increased significantly to $212 million on September 30, 2022.

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“Lithium demand has remained strong despite some short-term supply chain disruptions and global macro concerns,” the CEO commented. “Lithium published prices increased in the third quarter amid continued favorable market conditions. Livent achieved higher realized prices and delivered higher volumes to customers,” he continued.

The Market Outlook

Lithium prices have tripled in the past year and due to long-term supply shortages of the chemical, which is used in electric vehicle batteries, lithium prices are expected to remain high. Figure 1 shows that lithium carbonate prices in China increased significantly from November 2021 to March 2022. From March 2022 to August 2022, lithium carbonate prices did not experience significant changes; however, in recent months, lithium prices have risen due to growing demand and tight supply. As China’s decarbonization targets prompted local governments to pass cash incentives for electric car purchases, electric vehicle sales in September 2022 were 80% higher than in September 2021. Meanwhile, to expand the manufacturing batteries for electric vehicles, the Biden administration announced concession $2.8 billion to 20 companies to build and expand commercial-scale facilities in 12 states to mine and process lithium, graphite, and other battery materials. “Producing advanced batteries and components here at home will accelerate the transition away from fossil fuels to meet strong demand for electric vehicles, creating more good-paying jobs across the country,” the US Secretary of Energy said. Growing demand for Electric vehicles support lithium prices. According to Intelligence of MordorThe lithium hydroxide market is expected to grow at a CAGR of more than 10% between 2022 and 2027, due to the increasing demand for rechargeable batteries used in electric vehicles that are significantly subsidized by the US and US governments. China.

Figure 1 – Lithium Carbonate Prices in China

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Figure 1 - Lithium Carbonate Prices in China

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In the third quarter of 2023, LTHM completed its 5 thousand metric ton lithium hydroxide expansion in Bessemer City. As a result of this recent mechanical completion, LTHM is in the early stages of production and product qualification with customers at its new hydroxide plant. The company expects production at Bessemer City to ramp up in 1Q 2023. In addition, by the end of 2022, the first 10,000 metric ton lithium carbonate expansion in Argentina will be mechanically completed, and in 1Q 2023, production will start. . By the end of 2023, Livent will add the next 10,000 metric tons of lithium carbonate capacity in Argentina. Therefore, by the end of 2023, Livent’s total available lithium carbonate equivalents (LCE) will be 100% higher than in 2021. In addition, the company has begun adding an additional 15,000 metric tons of lithium hydroxide capacity at China, which is expected to be mechanically reduced. complete by the end of 2023.

In addition, Livent has a direct 50% interest in Nemaska ​​(an integrated hydroxide project located in Canada). With 34,000 metric tons of nominal battery-grade lithium hydroxide capacity and over 30 years of mine life, Nemaska ​​is expected to be the largest lithium hydroxide production site in North America. Mechanical completion of Nemaska ​​is scheduled to occur in late 2025. With its current and future developments, LTHM stands to benefit significantly from the growing demand for lithium. The company expects its full-year 2022 revenue to be between $815 and $845 million, at least 94% higher than in 2021. In addition, LTHM’s full-year 2022 Adjusted EBITDA is expected to be between $350 and $370 million, at least 400% more than in 2021. 2021.

Figure 2: LTHM Guidance for Full Year 2022

Figure 2: LTHM Guidance for Full Year 2022

Q3 2022 Results

performance perspective

The debt-to-asset ratio is one of the significant calculations that measure the borrowing capacity of the company. This ratio indicates the proportion of assets that are being financed with debt. The higher the index, the greater the degree of leverage and financial risks. The company’s debt-to-asset ratio jumped from 0.01 in 2018 to 0.20 in 2019 and increased further to 0.31 at the end of 2020. However, due to rising lithium prices and higher demand for its products, LTHM’s debt-to-asset ratio decreased. . The company’s debt-to-assets ratio was 0.21 at the end of 2021 and 0.13 on September 30, 2022. LTHM’s debt-to-EBITDA ratio (which determines the probability of a debt default ) plummeted from 20.48 at the end of 2020 to 3.74 at the end of 2021. It further decreased to 0.91 on September 30, 2022. Finally, LTHM’s asset-to-equity ratio increased from 1.35 at the end of 2018 to 1.58 at the end of 2019 and 1.75 at the end of 2020. Due to better performance as a result of better market conditions, LTHM’s asset-to-equity ratio decreased to 1.51 at the end of 2021 and to 1.48 on September 30, 2022. The decline in the asset-to-equity ratio over the past few years indicates that the company has been using less debt to finance its assets. Due to its recent developments and plans, and the promising market outlook for the lithium market, LTHM’s leverage ratios will improve in the coming quarters. LTHM’s leverage ratios show that the company can meet its current and future obligations (see Figure 3).

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Figure 3 – LTHM Leverage Ratios

Figure 3 - LTHM Leverage Ratios

Author (based on SA data)

Summary

As the demand for electric vehicles increases, the demand for lithium carbonate increases. Lithium carbonate prices are supported by growing demand for lithium batteries, limited supply, and subsidies and subsidies from the US and Chinese governments to lithium producers. Due to the considerable developments that have increased its production capacity, the company will make great profits in the coming years. The action is a purchase.

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