The Liontown Resources Ltd (ASX: LTR) share price has sunk significantly in the past year. Since 10 October 2023, the ASX lithium share has fallen more than 61%.
Is there a chance the business can recover in three years? Let's have a look at what might happen.
Two main things have gone wrong for Liontown Resources recently. Let's quickly recap these first.
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The main negatives for the ASX lithium share
First, the Albemarle Corporation's takeover interest looks to be over. The ASX lithium share was a takeover target, but a move by Gina Rinehart's Hancock Prospecting to buy almost 20% of the business appears to have prompted Albemarle to end its interest.
That offer was $3 cash per share, 61% lower than Liontown's current price of $1.17. Albemarle said that its decision to withdraw its proposal was due to the growing complexities associated with executing the transaction. It confirmed at the time that it favourably viewed the Kathleen Valley project and Liontown's management.
The second tailwind is the lithium price, which has sunk over the past year and a half. The commodity price is a key part of a miner's potential profitability.
While Liontown is only constructing its project at this stage, it will become operational in the future. Lower commodity prices could mean lower earnings if the lithium price stays lower than expected.
Where might Liontown Resources shares be in three years?
No one can truly predict what lithium prices will do. But with the Kathleen Valley project expected to become operational within the next three years, Liontown may start generating profit and cash flow.
The broker UBS has some suggestions of what the business may generate in FY27.
UBS has forecast that Liontown could generate revenue of $871 million in the 2027 financial year, an increase from $535 million in FY26 and $116 million in FY25.
Additionally, according to the broker, Liontown Resources could start making positive earnings before interest and tax (EBIT) in FY26 (estimated to be $97 million), then rise to $298 million in FY27.
Net profit after tax (NPAT) — perhaps the most important figure – is expected to be $40 million in FY26 and then rise to $184 million in FY27. In FY28, the net profit is projected to lift again to $320 million.
What about the lithium price?
UBS said there were potential downside risks to its 2024 and 2025 average lithium spodumene price of US$1,060 and US$1,210 per tonne.
However, the broker expects "prices to rise over the medium term with a supply response to current low prices already starting".
Foolish takeaway
Overall, things may be more promising than some investors expected. It will be interesting to see if lithium prices rise as expected.
