The IGO Ltd (ASX: IGO) share price is falling again on Tuesday.
In afternoon trade, the battery materials producer's shares are down 2% to $9.50.
At one stage, IGO's shares were trading at a 52-week low of $9.34. This follows the release of a disappointing quarterly update on Monday.
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Is the IGO share price in the buy zone now?
Analysts at Goldman Sachs have been running the rule over the quarterly update.
And while the broker acknowledges that some of the company's commentary regarding its lithium joint venture, Tianqi Lithium Energy Australia (TLEA), was a touch concerning, it believes the market has overreacted. It said:
The key focus though was TLEA having elected to not take its full spodumene entitlement from Greenbushes for the Dec-23 quarter (sales volumes expected to be ~25% below production) which we expect in part was driven by the emerging disconnect between the lagged pricing mechanism and spot spodumene prices, which sit ~30% below the Dec quarter reset price.
We expect this news was a significant contributor to IGO's underperformance (IGO stock -9% or ~A$700mn), though set out scenarios in Exhibit 3 outlining that the negative market reaction may have been overdone.
That exhibit essentially demonstrates that the net cash flow impact to IGO from this decision remains marginal at a range of spodumene prices.
In light of this, the broker believes investors should be snapping up the company's shares while they're so cheap. Especially given how the company's Greenbushes operation is the lowest-cost Australian spodumene producer, which leaves it well-positioned in the current environment. It adds:
[W]ith Greenbushes the lowest cost Australian spodumene producer, IGO noted that Greenbushes shareholders have a strong incentive to ensure volumes still flow to market. As such, while the stockpiling of volumes was the easiest solution in the near-term, we would expect a potential solution to be in place into the Mar-24 quarter via either a recut pricing mechanism (potentially removing lags/adding provisional pricing) or an agreed pecking order for offtake-deferred spot sales, mitigating the bulk of the impact beyond the Dec-23 quarter.
Major upside ahead
Goldman has a buy rating and a $12.70 price target on the company's shares. This implies a potential upside of approximately 34% for investors over the next 12 months.
In addition, the broker is forecasting an attractive 5.9% dividend yield in FY 2024. Though, it is worth highlighting that it expects this to fall to 1.7% in FY 2025 and FY 2026.
