Lynas share price charges higher despite 74% half-year profit decline

Weak rare earths prices have weighed heavily on the company's profits.

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The Lynas Rare Earths Ltd (ASX: LYC) share price is having a solid start to the week.

In morning trade, the rare earths producer's shares are up 4% to $6.08.

This is despite the release of the company's half-year results, which revealed a sharp drop in profits.

Lynas share price charges higher despite falling profits

  • Revenue down 36.5% to $234.8 million
  • Earnings before interest and tax (EBIT) down 80% to $31.8 million
  • Net profit after tax down 73.6% to $39.5 million
  • Cash and equivalents balance of $686.1 million

What happened?

For the six months ended 31 December, Lynas reported a disappointing 36.5% decline in revenue to $234.8 million. This was driven by a sharp decline in rare earths prices during the period.

And while its cost of sales declined 14% year on year to $159 million, this wasn't anywhere near enough to stop its EBIT collapsing 80% to $31.8 million.

But thanks to a sizeable cash balance and higher interest rates, the company's net profit after tax was greater than its EBIT at $39.5 million. This appears to have been better than the market was expecting.

Management commentary

Lynas' CEO, Amanda Lacaze, commented:

Notwithstanding the exciting expansion and exploration activities undertaken in the half year, and the low market price environment, I am pleased to report a profitable first half for the business. Continued demand for Lynas products and careful management of inventory and operating costs resulted in revenue of $234.8m, EBITDA of $62.6m and a net profit (NPAT) of $39.5m.

Outlook

Lacaze remains very upbeat on the company's future due to increasing demand for rare earths. She said:

The rare earths market is important to many industries and we continue to see strong customer demand for Lynas' products. Lynas has a proven track record of managing costs and operations to ensure that we can be successful in all market conditions, and across all stages of the market cycle. Optimising our industrial footprint through operating efficiencies and capital growth projects will ensure Lynas is well positioned to benefit from forecast market growth and any improvement in market pricing conditions.

The Lynas share price is down 24% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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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