It looks set to be a nervous 24 hours for owners of Liontown Resources Ltd (ASX: LTR) shares.
If you weren't lucky enough to sell your shares to Gina Rinehart for $3 per share in recent weeks, then you could be facing a big decline on Wednesday.
With the lithium developer's takeover by Albemarle Corp (NYSE: ALB) collapsing on Monday and the company immediately launching a capital raising, the Liontown share price is expected to return from its halt with an almighty thud.
But just how far could the company's shares fall when they return to trade? Let's find out what could happen.
How low could the Liontown share price go?
The team at Goldman Sachs has been reassessing its valuation model for Liontown in light of yesterday's events.
According to the note, its analysts have downgraded the lithium developer's shares to a sell rating with a $1.85 price target. This implies a potential downside of almost 34% for the Liontown share price from current levels.
The broker made the move on valuation grounds, highlighting that the company's shares trade at a significant premium to peers. It said:
On our LT spodumene price of US$1,000/t (real 2027), LTR is trading at a significant premium to our revised NAV at ~1.85x (peer average ~0.95x), and remains at a premium to peers on implied LT spodumene price of ~US$1,600/t (~US$1,800/t excluding nominal value; peer average ~US$1,100/t & ~US$1,300/t), likely in part on M&A activity, though retains a high valuation sensitivity to our LT lithium pricing. At our revised PT of A$1.85/sh LTR has 37% downside (vs. peer average ~20% upside). We sit below consensus in FY25E (first year of production) on our lithium pricing outlook and ramp up profile (~40% below), though factor in an accelerated expansion.
However, it is worth noting that Goldman has incorporated an M&A component into its price target and given it a ranking of 1. This is its highest possible ranking. It explains:
We then assign an M&A rank as a means of scoring companies under our rated coverage from 1 to 3, with 1 representing high (30%-50%) probability of the company becoming an acquisition target, 2 representing medium (15%-30%) probability and 3 representing low (0%-15%) probability.
Goldman then adds:
We now rank LTR a 1 under our M&A framework given an emerging/de-risking tier 1 global asset with growing unallocated volumes and IRA-aligned strategic partners. Our M&A value is based on our un-risked NAV at consensus LT spodumene pricing (which we estimate at ~US1,200-1,500/t, mid-point ~US$1,350/t), implying an M&A valuation of ~A$2.5/sh.
The only problem here is that it seems unlikely that anyone other than Gina Rinehart's Hancock Prospecting would be able to get a takeover over the line. And what a shame it would be for shareholders if Hancock effectively blocks a $3.00 per share takeover to later acquire the company for $2.50 per share.