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E&P Capital says that while lithium equities have fallen on Chinese supply concerns, the market remains difficult to call, and they'd prefer to sit on the sidelines until stock prices fall further, or spot prices move materially higher.
That said, E&P analysts do prefer Pilbara Minerals Limited (ASX: PLS) and Mineral Resources Limited (ASX: MIN) in the sector, "albeit we have downgraded both recently on valuation grounds to neutral''.
We retain our neutral stance on the Lithium sector. It remains quite challenging to call given spot lithium prices remain circa 50% below implied equity prices. We would argue the recent IGO sell-off looks overdone as the company didn't necessarily participate in the 'lithium bounce' given the 'Kwinana' issue in the preceding few months. That said, Kwinana cash burn remains an unresolved catalyst that has been in place for quite some time. Pilbara Minerals seems to be the preferred lithium exposure among institutional investors post-recent marketing. Mineral Resources arguably has more catalysts but has also bounced hard, yet consensus iron ore prices look too low in FY26.
E&P Capital has a valuation of $2.60 for Pilbara Minerals stock, compared with the current price of $2.23, while it has a valuation of $38 for Mineral Resources, compared with the stock price of $38.62.
The broker has a $5 valuation on IGO Ltd (ASX: IGO) against the current price of $4.72, and a 74 cent valuation for Liontown Resources Ltd (ASX: LTR) compared with the current price of 89.5 cents.
