Lynas: Strong commodity prices enabling robust cash flows

Given the recent strong underlying neodymium-praseodymium price, we revisit the opportunities for further upside for Lynas in our sensitivity analysis. Lynas has performed well recently but still further significant upside if neodymium praseodymium (NdPr) prices persist at spot.

There could be significant cash flow at these levels, with Lynas generating $275M in free cash for FY18e. Under this assumption into perpetuity, our valuation (fully diluted) would increase to $0.40 per share.

We have a valuation range of $0.25-$0.40/share for spot prices in FY18e only, FY18e-FY20e, and in perpetuity. The Bull case of US$100/kg ex VAT gives a valuation range of $0.28-$0.76/share

 

We recommend Lynas as a Buy and have a 12-month price target of $0.23/share, in line with our DCF valuation. Our target is based on a conservative production capacity increase and schedule, and a long term NdPr forecast of US$48/kg (exVAT).

 

Key catalysts for the stock include: sustained momentum in NdPr oxide prices, increased production capacity, ongoing reliable RE production, and continued deleveraging of the company.

Our research is here: (VIEW LINK)

 


1 topic

1 stock mentioned

Providing investment strategies, research and ideas to institutional and professional investors since 1991, with a primary focus on emerging Australian companies.

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.