Top broker tips Allkem share price to jump 80%

Allkem’s shares could be heading a lot higher according to one broker…

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A man wearing a suit holds his arms aloft with a smile on his face is attached to a large lithium battery with green charging symbols on it.

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The Allkem Ltd (ASX: AKE) share price has been having a tough time of late.

Due to the market volatility, this lithium producer’s shares have lost 25% of their value since this time last month.

In light of this, some investors may be wondering if the Allkem share price weakness has created a buying opportunity.

Is the Allkem share price good value now?

According to a note out of Bell Potter this morning, its analysts have reiterated their buy rating with a trimmed price target of $17.53.

Based on the current Allkem share price of $9.85, this implies potential upside of 78% for investors over the next 12 months.

Why is the broker bullish?

Bell Potter is bullish on Allkem due to its equally bullish view on lithium prices.

Unlike some analysts, the team at Bell Potter is expecting lithium prices to remain strong for the foreseeable future thanks to market deficits caused by increasing demand for the battery making material.

Combined with its growing production, the broker expects this to boost Allkem’s cash generation and profits materially in the coming years.

Bell Potter explained:

We expect AKE’s near term cash generation to lift substantially into 2023 as strength in lithium commodity indices flows through to lagged realised prices. AKE is aiming to maintain 10% share of supply in a global lithium market experiencing unprecedented growth; it has a portfolio of growth projects, balance sheet strength and cash flow from existing projects to achieve this. On our estimates, lithium demand will lift from current levels of around 500ktpa to over 1.1Mtpa in 2025 and more than 3.2Mtpa by 2030, driving market deficits and strong lithium pricing.

As for its profits, the broker is forecasting a reported net profit of US$309 million in FY 2022. After which, it expects Allkem’s net profit to lift to US$680 million in FY 2023 and US$912 million in FY 2024.

All in all, this could make Allkem a share to consider if you’re looking for lithium exposure.

Motley Fool contributor James Mickleboro has positions in Allkem Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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