Lynas share price on watch after 244% profit jump, doubling revenue

The rare earths producer had a bumper year, to now slash its PE ratio to 13.4. How will the market react?

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Key points

  • Lynas Rare Earths reported its 2022 financial year results
  • Revenue, net profit and earnings all made massive leaps
  • Price-to-earnings ratio has been slashed

The Lynas Rare Earths Ltd (ASX: LYC) share price will be closely monitored on Friday after the company revealed explosive growth in its 2022 financial report. 

What did Lynas report?

What else happened in FY22?

Lynas, as the only significant producer of rare earths minerals outside of China, has enjoyed the world's desire to break a monopoly. For example, in June the US Department of Defence signed a $120 million deal with the company to build a rare earths separation facility in that country.

Of course, there is a downside to being an economic beneficiary of geopolitical tensions. Also in June, a cybersecurity company revealed Lynas was targeted by a pro-China social media campaign.

Lynas' plant in Malaysia also had to put up with an 11-day shutdown in October due to COVID-19, although the company used that time to perform maintenance.

What did management say?

Lynas managing director and chief executive Amanda Lacaze said:

Favourable market conditions and strong demand for Lynas' rare earth materials saw sales revenue increase by 88.1% and net profit after tax (NPAT) increase by 244% from the 2021 result. Rare earths prices were sustained at high levels during the second half of the year, and the NdPr market price remained 70% to 80% higher than in the same period last year.

Ongoing measures implemented across the business mitigated some of the challenges presented by the external environment, including shipping delays, input cost increases, water supply issues and the ongoing effects of the COVID-19 pandemic. The Lynas team prioritised production to meet the needs of our customers and remained focused on growing the business to support customer growth. 

What's next?

The company declined to give specific guidance for the 2023 financial year.

However, it is in the midst of executing its "2025 growth plan". This is how Lynas explains the strategy:

Our expansion initiatives will support the further growth and development of outside China supply chains, including the re-establishment of a rare earths supply chain in the United States. The objectives of the Lynas growth plan are to grow with the market, diversify the company's industrial footprint, and increase the product range for customers.

Lacaze said:

Closing cash at $965.6m allows us to confidently progress our various growth initiatives. This is important as Lynas is uniquely positioned with a resilient supply chain for rare earth materials from our facilities in Western Australia and Malaysia to our partners in Vietnam, Japan and Europe. This is valued by our key customer base. 

Lynas share price snapshot

Like many resources stocks, the Lynas share price has been volatile.

The stock is down more than 19% year to date, but over the past 12 months it's actually up 34%. The Lynas share price has dipped 11.9% over the past 10 days.

The stock had a price-to-earnings (P/E) ratio of 29.6 before the latest financials, but that now sits at 13.4.

Lynas does not pay out a dividend.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. 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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