Pilbara Minerals Ltd (ASX: PLS)

Company Overview: Pilbara Minerals Limited is a leading Australian lithium producer and supplier, focused on the sustainable development and production of lithium raw materials critical to the global transition to renewable energy and electric vehicles. The company owns and operates the Pilgangoora Lithium-Tantalum Project.

Recommendation Rationale - SELL at AUD 2.405

• Facing Resistance: Since the last coverage on 6 January 2025, PLS has gained approximately 10%, and surpassed the resistance 1 level; therefore, it can face resistance in the short term.
• Financial Decline: During FY24, Revenue and EBITDA declined by 69% and 84%, respectively. The average realised price in FY24 was 74% lower than the pcp.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples (EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book) are higher than median of the Basic Materials’ sector.
• Demerger News: Latin Resources Limited (ASX: LRS) held key shareholder and optionholder meetings on 16 January 2025, to discuss significant corporate changes. The agenda included the proposed demerger of non-core mineral exploration assets in Australia, Peru, and Argentina into a new entity, ESG Minerals Limited, and the acquisition of all shares and options in Latin Resources by Pilbara Minerals Limited (ASX: PLS) through schemes of arrangement.
• Commodity Price Volatility: Lithium prices are highly cyclical and influenced by demand-supply dynamics, particularly in the electric vehicle (EV) and battery markets. A significant drop in lithium prices could impact revenues and profitability.

PLS’s Daily Chart

 (Source: REFINITIV; Analysis by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY Jun’26E) (Illustrative)

PLS is expected to trade at a discount compared to its peers considering unpredictable revenue streams, reliance on the electric vehicle (EV) and battery markets, cost overruns, or lower-than-expected production from its Pilgangoora operations. For conducting the valuation, the following peers have been considered: IGO Ltd (ASX: IGO), Liontown Resources Ltd (ASX: LTR), and Deterra Royalties Ltd (ASX: DRR).

Considering the geopolitical risks, foreign exchange fluctuations, and potential disruptions in key customer markets, risks associated, and the share price can face consolidation at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 2.405, as of 17 January 2025, at 3:05 PM AEDT.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 17 January 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Kalkine reports are prepared based on the stock prices captured either from REFINITIV or Trading View. Typically, REFINITIV or Trading View may reflect stock prices with a delay which could be a lag of 25-30 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.