Recent weakness in the Allkem Ltd (ASX: AKE) share price could have created an extremely attractive buying opportunity for investors.
That's the view of analysts at Bell Potter, which are predicting material gains ahead for the lithium miner's shares.
What is the broker saying about Allkem shares?
According to the note, Bell Potter currently has a buy rating and $18.61 price target on the company's shares.
This implies potential upside of approximately 84% for Allkem shares over the next 12 months from current levels.
And while Bell Potter isn't expecting a dividend to be paid this year, it won't be long until its maiden dividend makes an appearance.
Its analysts expect a 40 cents per share dividend in FY 2024, which represents an attractive 3.9% yield.
Why is it bullish?
Bell Potter is bullish on Allkem shares due to its strong production growth plans, balance sheet strength, and the diverse nature of its operations geographically, operationally, and end-product. It commented:
We expect AKE's cash generation to lift substantially from 2023 with ongoing strength in lithium demand, commodity prices and production growth. 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 target. AKE's portfolio is also diversified across lithium commodity type, mode of production, asset location and end-user country.
Bell Potter also spoke about lithium prices, noting that Allkem expects another strong quarter ahead despite recent spot price weakness. It said:
AKE expect March 2023 quarter pricing to be consistent with the December 2022 quarter (US$53,000/t), and this was reiterated in the result today. The company also noted that stocks within the lithium supply chain remain low and should be supportive of prices, despite recent weakness in spot indices.
All in all, the broker appears to believe Allkem shares could offer a compelling risk/reward at current levels.
