KLL (ASX) Valuation

Originally posted by RefreshNow: ↑

One way to look at it is KLL launched back in December 2016 at 20 cents per year and here we are 4 and a half years later at 22 cents per share. That should tell everyone what the market has thought about KLL over the medium term.

How many times especially recently have there been people saying once the 23 cent line was wiped the share price was going to boom and then it was the 26 cent line and here we are back at 22 cents. The market already knows about September production, it's not going to come as a pleasant surprise if it is done, it is more of a risk if it isn't done.

Imagine an institutional investment fund having a meeting to review various options and someone presents on the SOP companies in Australia. I could hear it now 'Great news everyone, an exciting time for Australian SOP companies. Let me start by introducing in the red corner SO4, just went on a trading halt, trouble producing SOP to the specs required, need to do a capital raise. In the blue corner we have DNK, been promising to get funding for years, watched an interview with the head of the company which sounded about the same as every interview ever done with them over many years, they underestimated the time to get finance, just delisted from the London exchange rate but don't worry it's all going to be smooth sailing from here. STOP THE FIGHT. Don't worry we have KLL over here, not producing yet, don't know how they are going to transport SOP if they ever get any down the production line and are hinting at needing more money to improve processing & increase capacity in their plant before they have even opened.

Exaggerating a bit I know but when there are plenty of options on the table for money to be invested, this industry might not come across as the best for them to invest in. Successful on time production is highly unlikely to produce an immediate and significant lift in the share price. They will need to prove that cash flow has started, they can produce reliably and consistently and preferably above the initially advised targets as a lot of companies lowball their production estimates so it looks good when actual production is ahead of target. Once they have done this for 6 months or so and the SOP price is stable or increases then we can expect a lift in the price. Not to mention the exchange rate.

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fair to say there’s scepticism around it, and that’s probably due to the risks.

But, KLL is almost at first production, and they’ve taken measures to derisk the process. What I reckon is the risk reward is generous here. It’s risky because the rest of the industry (and also the company in the past to be fair) has had its fair share of curveballs. however, if they do manage positive free cash flows in the next two years (to be generous) they should errate. Also, I think longer term macro conditions will treat this company well (I’m talking price floor on Mannheim process, pressure in ag yields, pop growth and dietary development of third world etc).

at 22 cents you’re pricing in a lot of “misses” on forecasts, imo. Sure it may not shoot up double at production (because it’s not lithium) but it should definitely build to a pe with a growth multiple once profitability and trust is established. Essentially they’ve shot themselves in the foot cap raising panic era 2020, and so4 is cursed with an idiot for a ceo. But look at the company now!