SQM the Lithium king

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.

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