Updating Livent Model and FVE for Q4 Earnings

After updating our Livent LHTM model to incorporate its fourth-quarter earnings, we slightly reduce our fair value estimate for the company to $37 per share from $38 to reflect lower near-term volumes. The lower volumes are a result of a slight delay to the company’s new lithium carbonate production at its Argentina resource. Our narrow-moat rating is unchanged.

Livent shares were roughly flat in after-hours trading. At current prices, we view Livent as undervalued with the stock trading in 4-star territory at more than 30% below our fair value estimate. We think the market is expecting lithium spot prices will see a large decline in 2023 as supply and demand return to balance. If this were to occur it would be caused by the ramp up of new supply exceeding demand growth. We view this scenario as unlikely due to what will likely be delays in new supply, including delays from Livent.

Admittedly, lithium carbonate spot prices have fallen a little over 10% from their highs last November and now sit at just below $70,000 per metric ton. However, we think this reflects the slowdown in the Chinese EV market, which saw sales volume growth slow in December and January amid expiring federal government subsidies.

Following EV automaker price cuts, demand will likely begin to rise in China. Combined with rising EV sales in the U.S., following the Inflation Reduction Act and the continued buildout of energy storage systems to support renewable energy generation, we expect lithium demand growth will outpace supply growth in 2023, leaving prices higher.

Accordingly, we maintain our 2023 lithium carbonate spot price forecast of $70,000 per metric ton. For lithium producers, including Livent, this should result in their realized lithium prices, and profits, rising this year.