What corporate event coincided with Livent going from outperforming to underperforming on the NYSE market?
The shift from overperforming/neutral to underperforming respective its Li peers started around Q3 of 2021, well ahead of any merger talks with AKE (May 2023).
In contrast, the ASX market continued valuing AKE as an outperformer respective its Li peers up until today.
In the Livent Earnings call for Q3 2021, Chris Kapsch from Loop Capital Markets asked about the company's pivot towards supplying more lithium carbonate and inquired about the duration of this shift. Paul W. Graves, the President and CEO, responded that the shift towards greater carbonate volumes is only temporary and is influenced by the reduction in lithium hydroxide production in China. Graves highlighted the opportunistic nature of the move and mentioned that the company will take advantage of carbonate situations when possible but doesn't expect to become a large lithium carbonate seller in 2022. He anticipated more opportunities in 2023 when the Argentina phase one comes online.
Regarding hydroxide pricing, Chris Kapsch raised questions about a potential premium for hydroxide pricing due to a structurally tighter hydroxide market. Graves emphasized the historical stability in hydroxide pricing, driven by commitments and the recognition of the importance of security of supply. He discussed the dynamics between hydroxide and carbonate pricing, pointing out that carbonate pricing can be more volatile and may outperform hydroxide pricing for certain periods. Graves also discussed the industry's shift towards LFP batteries, acknowledging the complexities in choosing one technology over another.
Stephen Richardson from Evercore ISI inquired about Livent's underlying earnings power and cash flow generation potential, using 2018 as a baseline. Graves explained that while costs have increased, the business mix has changed, with more focus on hydroxide. He indicated that achieving 2018 financial performance is achievable, considering the current pricing environment.
In a discussion about the guidance for Q4, Joel Jackson from BMO Capital Markets sought clarification on the higher EBITDA in Q4 compared to Q2 and Q3 despite similar revenue levels. Graves attributed this to a shift toward higher-margin carbonate, improved profitability due to current market conditions, and costs that are not expected to repeat in Q4.
Regarding 2022 pricing, Graves mentioned that transacting volumes would likely follow market pricing, while some set prices could see double-digit increases, with the lowest increase being over 20%.
Finally, Greg Cove from Piper Sandler inquired about Livent's hydroxide plant in China and the potential for increased utilization. Graves explained that the plant's operation is influenced by government policies, and disruptions may continue. He also discussed the chloride facility in Argentina and the potential for it to become a larger part of the business, especially with the growth of lithium metal production. Fein asked about a better appreciation for the need for security of supply and whether customers were more receptive to longer-term contracts with price protection. Graves confirmed anecdotally and contractually that there is a better appreciation for security of supply. He emphasized the constructive conversations about commitments in the supply of hydroxide.
Kevin McCarthy from Vertical Research inquired about the percentage of production intended for multiyear fixed-price contracts in 2022. Graves mentioned that for hydroxide, it would be between 50% and 80%, with a meaningful proportion of the business being sold through multiyear fixed-price contracts.
Harrison inquired about when Livent would stop capitalizing interest and the potential impact on interest expenses. CFO Antoniazzi explained that interest would continue to be capitalized as long as there's ongoing capital spending.
David Deckelbaum from Cowen inquired about contracts for LIOVIX and whether Livent would withhold upstream supply. Graves explained the value of LIOVIX and emphasized its performance benefits, indicating that the economic argument is less about lithium content.
Deckelbaum asked about Livent's strategies for growth and whether there were plans to acquire advanced development resources. Graves expressed the high priority of growing quickly and getting bigger, exploring options to create more value for shareholders and customers.
And as history tells us, LiCO3 remained priced at a premium over LiOH!
Graves bet on LiOH and leadership is in part responsible for the shift, why NYSE values Livent less than its peers.
AKE Price at posting:
$9.16 Sentiment: Buy Disclosure: Held
