Liontown Resources Ltd (ASX: LTR) shares could have significant upside potential.
That's the view of analysts at Bell Potter, which have just upgraded the lithium developer's shares.
Liontown shares getting back their roar
According to a note from this morning, the broker has upgraded the company's shares to a speculative buy rating with a reduced price target of $2.75.
So, with Liontown shares currently fetching $1.72, this implies a potential upside of 60% for investors over the next 12 months. Though, given its speculative rating, it ought to be considered a high-risk option.
Commenting on recent developments, the broker said:
Recent corporate activity around LTR highlights the scarcity of near to production lithium Resources globally. Albemarle's $3.00/sh cash proposal was withdrawn only after growing transaction complexities following Hancock Prospecting Ltd's on-market 19.9% share purchase (at an average $2.95/sh).
Kathleen Valley remains highly strategic in terms of scale, uncommitted offtake, timing and location in a tier one mining jurisdiction. Partnering for downstream lithium conversion remains an option longer-term.
As for its valuation, Bell Potter notes that this now factors in lower lithium prices, its capital raising, and operating cost expectations. It adds:
We have updated our model for the equity raise and recent capital and operating cost updates. We have also revised our lithium price outlook, with cuts to near-term prices and a lift in our long-term estimate (spodumene concentrate US$1,600/t, previously US$1,300/t). Our valuation is now $2.75/sh (previously $3.35/sh).
Overall, the broker continues to believe that the company's Kathleen Valley Lithium Project is a key asset and suspects that the company's shares will re-rate to higher multiples as its development de-risks. It concludes:
Over the next 12 months, LTR will transition from lithium developer to producer at the Kathleen Valley project in Western Australia. The strategic nature of this near-term production has been identified by major lithium groups. We expect production levels above committed offtake, potentially enabling further offtake agreements or increased spot market exposure. We expect LTR's share price to respond positively to the ongoing de-risking of Kathleen Valley's fully funded development and ramp-up, and to a recovery in lithium market prices and sentiment from current depressed levels.
