What do you call it when one of the biggest success stories on the ASX in recent years declares it will not be paying a dividend, flags weak commodity prices and a huge decline in quarterly revenue, then sees its share price jump 6.4 per cent anyway?
You could call it high conviction investment thesis, or, in my view, you could call it hype.
Especially seeing as quarterly (QoQ) revenue is down nearly 50 per cent while production increased.
People are confident dividends will return, but, looking at the lithium market, that’s a fairly risk-on assumption to make.
Pilbara Minerals – the company that turned spodumene into a household name – isn’t doing so hot as it once was, despite the fact it’s still without doubt a bona fide Aussie success story. I am not doubting that – don’t get me wrong.
But in its quarterly today, Pilbara reported it will slash its interim dividend – as in pull it all together – in the same report it outlines a QoQ revenue decline of 46 per cent.
You’d think that’d be bad news
And yet, its stock price has risen. But that’s the odd part.
It’s not like lithium prices are strong enough to support the mood where investors should just shrug that kind of thing off.
Benchmark Minerals Intelligence don’t expect lithium prices to experience anything close to their early 2020 strengths until 2028. Per the commodity cycle, supply and demand are clearly far more in line than they have been over the COVID era.
Bank of America Asia Pacific materials research chief Matty Zhao said earlier this week she expects lithium supply growth to outpace global demand by 2024.
Mr Zhao sees a 38 per cent growth in supply for the rest of the year.
That very same macro can be seen in Pilbara Minerals’ revenue declines QoQ.
The reality is, with lithium prices down ~80 per cent yearly (YoY), Pilbara Minerals fundamentally lacks a strong bull case on the commodity pricing side of things, on the supply side of things, and with a weaker China, on the demand side of things.
Overlooking depth of supply change
But, ASX bulls don’t seem to care.
Or, what I suspect to be more likely, they don’t realise just how quite poorly lithium price forecasts reflect any chance of a nearish-term return to former prominence for Pilbara Minerals.
All the right factors are there to support the view Pilbara Minerals is up on hype today and not an actual value proposition.
Consider the following:
- Pilbara Minerals listed in February 2019 at 64 cents
- In October 2022, it hit an all-time high of just over $5.40 per share
- The shares are worth $3.46 today (1 pm AEDT)
- The last time they were above $4.00 was October 2023
- Pilbara Minerals’ one-year returns are down 31.5 per cent
- YTD 2024 performance has seen the stock shed 11.9 per cent
- Lithium prices are down 80 per cent year on year
Looking at the first three years of its life on the bourse, that’s not bad for a three-year run – in fact, it’s absolutely fantastic.
Pilbara Minerals was the beneficiary of good geology (spodumene not lepidolite), sound business acumen, and extremely desirable timing (perfectly surfed the wave of the battery thematic).
But, there’s another way of putting that last bit: they got lucky, plain and simple.
Pilbara Minerals to this very day is still well above where it floated back in 2019, reflecting $3.48 per share as of 1 pm AEDT today – that’s including the six per cent jump it’s logged so far today.
But can Pilbara Minerals once again be the right stock, at the right time, in the right country, during the right crisis, during the right technological revolution, during a historically unprecedented window of demand for a critical mineral confounded by larger pandemic-borne supply chain pressures?
Clearly, at least some ASX traders think so. Anything is possible.