SQM is the best lithium stock in the world! Far more appealing than ETF LIT and the preoperational small caps.
1Q22 dramatically changed the outlook
- SQM record breaking 1Q22 results with EBITDA up 614% to US$1.1bn.
- LCE (Lithium) prices jumped to US$30k ton vs 4Q21 US$14k
- SQM is now selling 70% of production near the spot rate
- Post 1Q22 results and on US$30k ton LCE price, the stock has become cheap at 5x EV/EBITDA
- My new YE23 price target is US$181 +90%
LCE Price should stay high for longer
- The most important share price driver, LCE prices, continue to trend higher on EV Battery demand
- SQM new commercial strategy is to sell 70% at near spot prices
- SQM LCE realized price for 2Q22 should be higher than 1Q22
- I assume US$30k ton (vs US$18k ton) for YE22 and US$20k ton for YE23 forward
- Asian market is over US$70k ton
SQM ahead of peers
- The lithium market is full of new and preoperational companies
- SQM is the largest in terms of equity adjusted capacity
- ALB is underperformed due to its industrial chemical segments
- Pilbara is really the only in operation pure lithium company in full expansion
- Tianqi and Ganfeng are more chemical processors with equity stakes in Lithium production (Tianqi holds a 26% stake in SQM).
- Half the list, which is more extensive, are preoperational for the most part.
SQM should see substantial increase in estimates and price targets
- The stock just got very cheap with EV/EBITDA dropping from 15x to 6x on a monster increase in results, driven by LCE, fertilizer and Iodine prices.
- The market will need to upgrade SQM on its new LCE price/commercial strategy
- Price targets are head to the US$150 range
- The political risk on the new constitution seems to be mitigated.