If you dig a little deeper you will find the price to book value of equity logic flawed especially in the current environment. Ake book value of equity more than doubled following the merger with galaxy (biggest driver PPE). If you look at PLS balance sheet the PPE is carried at cost. A tonne of spod they now sell for 7k/t on bmx costs them c.usd700/t to produce, usd400/t less than 2 years ago. The PPE cost them x then and is carried at x where at fair value it should probably be 10x today.
Ebitda growth spread between the two companies is far higher.
At current design capacity pls 580ktpa * usd5,500/t * 75% margin = usd2.4bn ebitda ofcourse they are not at nameplate output but should be in the coming 12months.
Take the enterprise value of usd 6.4bn / forward looking usd2.4bn ebitda = 2.6x ev/ebitda
Comparatively ake
Spod 180ktpa * usd5,500 * 75% margin = usd0.74bn ebitda
Carb oz1 14ktpa * 0.665 economic interest * usd45k/t * 80% margin = 0.34bn ebitda
Total ebitda usd 1.08bn, EV usd 5.8bn = ev/ebitda of 5.8x
Scenario 2
Using 40kt Oz 1+2 * economic interest 0.665 * usd45/t * 80% margin = usd0.96bn ebitda
Total ebitda usd 1.7bn ebitda
Ev/ebitda = 3.4x (better but still far behind)
I do expect pls to have their p680 up and running before ake gets oz2 to nameplate. This will roughly be the same as sdv in LCE terms so net eachother off assuming current pricing dynamics remain unchanged.
The above is just a quick back of the envelope, pricing used consistently and ignores naraha (higher pricing from naraha offset by lower pricing at oz2).
Reality is spodumene is in short supply, market is pricing in value of near term additional output and hence near term cash flow. This won't always be the case and I do believe margins will sit with final product producers (carbonate and hydroxide) but for now it is far better producing more spod than more primary grade carbonate. It is less capital intensive to bring online, faster to bring online and favoured downstream for high spec battery grade li chemicals.
It is odd that ake has not announced expansion of naraha or elsewhere, that leaves them exposed to selling primary grade product. Perhaps that is in the works and hopefully Japan and elsewhere.
Lot of blue sky potential for both companies. Ake is better positioned with asset diversification, esg, proximity to key markets etc while pls takes full advantage of current strong market conditions and cash generation. March quarter cash generation was +2x ake. That alone warrants a hefty valuation premium and will only widen in the next 6-12months.
Beyond that the two companies market themselves very differently, pls is a leader in the space and markets themselves and communicates as such. Ake is silent as it has always been, if I didn't know better I'd say they were not an Aus company. Perhaps they would be better off listing on nyse. Their communication leaves much to be desired for and their quarterly calls where analysts spoon feed them questions is just cringeworthy.
In any case, lots of potential for both and best of luck to those invested in either or both.
Aimo
AKE Price at posting:
$12.40 Sentiment: None Disclosure: Held
