The Allkem Ltd (ASX: AKE) share price has started the year off with a bang. Previously known as Orocobre, Allkem was formed after the merger between Orocobre and Galaxy Resources. It has gained 26.7% over the past month, amid a suite of price-sensitive updates and broker upgrades.
The momentum from the end of 2021 has also continued into the new year. Since the onset of 2022, shares have climbed 7.5% and touched new 52-week highs last week.
Underpinning the upside in Allkem shares are hot-running lithium markets spurred on by heightened demand for electric vehicles. Allkem's position in the lithium value chain ensures it is a price taker, whose share price will fluctuate with volatility in these markets, say the experts.
JP Morgan also upgraded its baseline lithium forecasts for 2022/23 back in December, bumping up estimates by 30-70% depending on various scenarios. Let's take a closer look.
What's driving momentum in the Allkem share price?
The Allkem share price spiked in linear fashion in December. This came as the company released the feasibility study and maiden ore reserve estimate for its James Bay lithium project in Canada.
Allkem advised it had developed a sustainable, high-value hard rock lithium operation using "renewable hydropower" at the site.
The developments enable Allkem to widen its footprint in the North American and European markets for electric vehicles.
These updates also bump up the net present value (NPV) for the site by 2.5x compared to a preliminary economic assessment finished back in March 2021.
As such, Allkem says construction will start at James Bay towards the end of 2022. It hopes to have first commissioning in situ by Q1 2024.
The Allkem share price spiked more than 12% and touched $10.30 apiece in the days following the announcement, and the momentum hasn't slowed since.
What are brokers saying?
With lithium markets poised to continue their extended run in the green according to several experts, the analyst teams at a number of leading brokers are constructive on the Allkem share price.
UBS thinks Allkem is a buy and values the company at $10.75 per share. The broker opines that Allkem is well positioned to benefit from any continued upside in lithium prices. That is due to it being the owner of a plant that can produce up to 6% lithium oxide from 2 million tonnes of mined ore.
JP Morgan is equally as bullish on the company but reckons Allkem's earnings multiples are heading into the "expensive" category.
Still, the broker remains optimistic about Allkem "as it builds out its project pipeline with production to quadruple from FY21 levels over the decade".
The investment case is backed by a period of forecasted dividend growth and return on assets of 20% in FY23/24.
Meanwhile, Macquarie also reckons Allkem is a buy, recently lifting its price target by 13% to $13.60.
In the past month Allkem shares have gained almost 27%. Checking the trade depth on the company we see it has good fountain of momentum behind it, seeing as its 4-week average trading volume has crept up considerably to almost 4 million shares at the open today.
