Growth Focus: Pilbara Minerals Ltd (PLS)

by Patrick Taylor

Date of Data Capture: 31/8/2018
Classification: Lithium Mining
Current Price: $0.81
Market Capitalisation: $1.5 B
Forecast EBITDA Growth: Initiating Production
Yield Estimate: 0%
Consensus Price Target: $1.10
# Covering Analysts: 7
Discount at Current Price: 35.80%
Price Target Trend: Increasing-Flat
Signal Timeframe: Quarterly-Monthly-Daily
TrendBias: Up-Flat/Long-Medium

Short-term: Positive-Neutral
Medium-term: Neutral

Focus:Capital Growth
Set up Notes:
·    Lithium companies on the ASX have been falling in price while electric vehicle sales and forecasts have been surging higher – if forward forecasting is correct then this is a great buying opportunity as PLS moves towards production.
·    With no real performance data we like the 36% discount to the consensus price target of $1.10, recent resource upgrade, company specific forecasting, and strong sector expectations for rapidly growing global demand for lithium.
·    While pricing has pulled back 35% this year (after the 200% rally from late 2017) we see early-stage positive signalling coming through here now.
·    W
e mark strong support at 80c with further support layered down to 70c and 60c with resistance targets higher at $1.00, $1.10 and $1.20.

Growth Focus:Pilbara Minerals Ltd

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

You either believe that electric vehicles are the future of transport or you don’t. Taking into account the superior performance, safety advantages, much reduced ongoing maintenance, and the low-cost convenience of home ‘refueling’, we believe electric vehicles have many advantages that will continue to drive them forward. The current weakness seen across the battery metals space should provide a good entry opportunity into Pilbara Minerals Ltd (PLS) as the emerging lithium supplier begins to ramp up production and gets ready to charge ahead.

A bright future doesn’t ensure a smooth path and this year has seen many battery commodity stock valuations sliding back down on profit-taking and underlying materials price consolidation. This is a normal part of the market cycle and doesn’t mean the sector is slowing down, because if anything it seems to be speeding up, with EV sales performance beating expectations with growth forecasts accelerating.

If you are having trouble reconciling the recent pullback with the robust outlook you are not alone, but at least we have some guidance from what the major automakers think is going to happen, with nearly 100 billion US dollars being allocated for EV investment by major automakers like Ford, VW, Toyota, BMW, Mercedes and Porsche. This is in addition to increasing growth from leading EV specialists and isn’t yet including scope for trucks, buses and cargo shipping, and flight engines which will all require more batteries and more lithium. 

All of the near-term PLS lithium production has been secured through offtake agreements in place with major players General Lithium, Jiangxi Ganfeng Lithium Co, POSCO, and Great Wall – with tantalum offtake secured by Global Advanced Metals. In May the company increased the size of the Pilgangoora lithium resource by 36% and just last month showcased confident plans for expansion aggressive production growth whilst maintaining high margins and a long mine life. This provides a nice backdrop as the company fast approaches ramp up into full production with forecasts calling for an aggressive move into first profits. 

Founded at the start of 2005, PLS listed in 2007 and experienced some twists and turns on a somewhat rocky road before the beginnings of the current electrification wave saw them racing ahead in 2015. The stock tends to move in large trend cycles; moving up over 2000% from 2015-16 before falling back 64% by mid-2017, and then rallying 300% by year-end before pulling back by around 40% this year. Currently price is sitting above support at 80c and while we do have some short-term positive signalling we may be a bit early on catching the bottom here with some residual negativity seen in the medium-term, and could see pricing push lower towards deeper support.

Regardless of the background noise and volatility, we like the high potential opportunity presented here with PLS showing an exciting combination of aggressive growth forecasts and a strong discount to consensus target pricing. As the company gets closer to full production we should see interest and investment return to the stock as it prepares to power forward.   


This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.

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