Are you wanting to gain exposure to lithium for your investment portfolio?
If you are, it could pay to listen to what analysts at Bell Potter are saying about two popular ASX lithium stocks. Here's what you need to know:
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Liontown Resources Ltd (ASX: LTR)
Bell Potter thinks investors should be buying Liontown shares following a big industry announcement. This morning, the broker has reaffirmed its buy rating on its shares with an improved price target of $1.52 (from $1.30). This implies potential upside of 15% for investors from current levels.
In response to a deal between Mineral Resources Ltd (ASX: MIN) and POSCO, the broker said:
The deal is clearly positive for lithium sector sentiment, with an existing lithium player looking to secure upstream supply. POSCO already holds an extensive portfolio of assets and agreements in the upstream and midstream lithium sector, including South American brines, spodumene concentrate offtake and conversion; the group has now entered a hard rock mining JV.
Analysis of deal multiples should consider: the relatively low level of control (POSCO is acquiring a minority interest in a JV, which holds a JV share in the underlying assets); the offtake agreement; and MIN's sell-down motivations. The implications for LTR are positive in terms of sentiment and value; LTR should trade on a premium to this deal given its 100% interest in Kathleen Valley (control), available offtake, and strengthened balance sheet.
Pilbara Minerals Ltd (ASX: PLS)
While the Mineral Resources-POSCO deal is a positive for the sector, it isn't enough for Bell Potter to change its view on Pilbara Minerals. It continues to rate the lithium miner as a sell with a $2.65 price target on its shares, which implies potential downside of 23%.
This is largely due to its belief that Pilbara Minerals shares are overvalued. It said:
We recognise PLS should trade on a premium to this deal given its 100% interest in Pilgangoora, growth optionality and strong balance sheet. However, we view the current premium to the deal multiples as excessive.
We maintain our Sell recommendation. We hold a positive long term lithium market outlook and recognise PLS' market leading position and growth optionality. However, we believe PLS' current market valuation implies an SC6 index price of around US$1,500/t into perpetuity, compared with the current price of around US$1,030/t.
Overall, the broker sees Liontown Resources shares as a better pick for investors that are looking for lithium exposure right now.
