Goldman Sachs is selling off its Liontown shares. Here's the lowdown

The broker has been buying and selling for short-term gains and is tipping a 45% fall from here.

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Key points
  • It's been an exciting six weeks for Liontown shareholders since the company revealed a takeover offer from Albemarle 
  • Top brokers have been ducking and weaving in and out of the ASX lithium share seeking short-term profits 
  • Goldman is among these brokers, although it is predicting a 45% fall in the Liontown share price over the next year 

Liontown Resources Ltd (ASX: LTR) shares finished the session flat yesterday at $2.75 each.

It's been an exciting six weeks for Liontown shareholders since the company announced it had received another takeover bid from US lithium giant Albemarle (NYSE: ALB) in late March.

The ASX lithium share has skyrocketed 81% since the company revealed its rejection of the $2.50 per share offer.

All of this has prompted some serious institutional investor trading, and Goldman Sachs is among it.

Let's investigate.

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Liontown shares roar on Albermarle offer

On 27 March, the day before the big announcement, Liontown shares closed at $1.525.

Then came the news pre-open the next day, and off they went to the stratosphere.

Liontown shares closed the day on 28 March at $2.57.

And they've kept on rising since.

Since the announcement, several institutional brokers have been jumping in and out of Liontown shares seeking to generate short-term profits.

One of them is top broker Goldman Sachs.

Let's check out their activity.

How 'instos' operate

First, a quick lesson on how institutional investors work.

The 'instos' often duck and weave in and out of ASX shares looking to make profits on short-term price movements (up or down).

Because they are investing huge sums of money at any given time, just a few cents of upward movement in a particular ASX share (or downward movement if they are shorting the stock) can be enough to deliver a considerable profit.

Sometimes their trading activity breaches the 5% 'substantial holder' threshold, which has to be declared on the ASX for all of us to see. From there, we can watch to see what they do with their holdings.

This gives us ordinary investors an idea as to what price to buy and sell a particular ASX share.

Handy, huh?

So, let's see what Goldman Sachs has been doing with Liontown shares of late.

Goldman's Liontown trading activity

Goldman became a substantial holder of Liontown shares a week before the Albemarle announcement.

After several months of purchases, the broker went beyond the substantial holder threshold of 5% on 22 March with a 5.08% total stake.

According to the notice, Goldman bought the shares with securities lending agreements in place, which is common with short sale strategies. 

On the day Liontown announced the Albemarle offer, Goldman ceased to be a substantial holder.

Its cessation notice revealed a series of buys and sells between 23 and 28 March, which took it under the 5% substantial holder watermark.

A couple of weeks later on 11 April, Goldman once again became a substantial holder with a 5.28% stake before ceasing to be a substantial holder on 13 April.

Over the past six weeks, the highest price that Liontown shares have traded at is $2.84.

What does Goldman think of Liontown shares?

Goldman analysts aren't that keen on Liontown shares.

In fact, they foresee a 45% drop from here.

In its most recent broker note on Liontown shares, published one day after the takeover news, Goldman issued a neutral rating with an unchanged 12-month share price target of $1.50.

Goldman noted the key risks included construction and commissioning risk, cost inflation, lithium prices, macro risks, growth, and mergers and acquisitions.

In the note, Goldman said:

While we like the outlook for the ramped up [flagship Kathleen Valley Lithium Project] and future optionality, we rate LTR a Neutral on:

(1) Valuation: LTR is trading at a discount to our NAV following recent share price performance, and remains at a discount to peers on both implied LT spodumene price and EV/reserves, while also having the second highest valuation sensitivity to our LT lithium pricing

(2) Strong capacity outlook, though pre-construction: Once ramped up to 500ktpa, Kathleen Valley will have a competitive scale (before expanding to 700ktpa toward the end of the decade)

(3) Rapid de-leveraging post-ramp up supports future growth and capital returns: We expect LTR to return to net cash by FY27E, and see optionality around the proposed timing of a downstream development, though capital returns lag peers with already operating projects.

At the time of writing, Goldman is no longer a substantial holder of Liontown shares.

This does not necessarily mean it has sold out of Liontown completely.

What's the latest on Albemarle?

Two days after Liontown announced its rejection of the offer, the company issued a statement revealing Albemarle had nearly doubled its stake from about 2.2% to 4.3% (that's less than Goldman has held recently).

Liontown said Albemarle had requested a copy of the register in order to contact shareholders directly about its offer.

On Tuesday, Liontown hosed down media speculation that it had received an offer from another suitor.

Broker Bell Potter has a $3.35 price target on Liontown shares.

As my Fool colleague James reports, the broker reckons Albemarle's bid was "reasonable, but not full".

Liontown released a new investor presentation on Tuesday.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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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