Goldman Sachs is selling off its Liontown shares. Here’s the lowdown

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.

Liontown Resources Ltd (ASX: LTR) shares finished the session flat yesterday at $2.75 each.

It’s been an exciting six weeks for Liontown shareholders since the company announced it had received another takeover bid from US lithium giant Albemarle (NYSE: ALB) in late March.

The ASX lithium share has skyrocketed 81% since the company revealed its rejection of the $2.50 per share offer.

All of this has prompted some serious institutional investor trading, and Goldman Sachs is among it.

Let’s investigate.

Liontown shares roar on Albermarle offer

On 27 March, the day before the big announcement, Liontown shares closed at $1.525.

Then came the news pre-open the next day, and off they went to the stratosphere.

Liontown shares closed the day on 28 March at $2.57.

And they’ve kept on rising since.

Since the announcement, several institutional brokers have been jumping in and out of Liontown shares seeking to generate short-term profits while the upward momentum is strong.

One of them is top broker Goldman Sachs.

Let’s check out their activity.

How ‘instos’ operate

First, a quick lesson on how institutional investors work.

The ‘instos’ often duck and weave in and out of ASX shares looking to make profits on short-term price movements (up or down).

Because they are investing enormous sums of money each time they trade, just a few cents of movement can generate a significant capital gain for them and their clients.

Sometimes their trading activity breaches the 5% ‘substantial holder’ threshold, which has to be declared on the ASX for all of us to see. From there, we can watch to see what they do with their holdings.

This gives us ordinary investors an idea as to what price to buy and sell a particular ASX share.

Handy, huh?

So, let’s see what Goldman Sachs has been doing with Liontown shares of late.

Goldman profits on the big announcement

How’s this for timing?

Goldman became a substantial holder of Liontown shares just a week before the Albemarle announcement. They took a 5.08% stake on 22 March.

On the day Liontown announced the Albemarle offer, Goldman took some profits. It ceased to be a substantial holder on the day.

A couple of weeks later on 11 April, Goldman once again became a substantial holder with a 5.28% stake.

The ASX disclosure doesn’t tell us at what price Goldman rebought Liontown shares.

But the ASX lithium share opened that day at $2.60, hit a low of $2.575, a high of $2.71, and then closed at $2.62.

Goldman held the stock for just two days before ceasing to be a substantial holder on 13 April.

On that day, Liontown shares opened at $2.70, hit a low of $2.67, a high of $2.73, and then closed at $2.73.

Over the past six weeks, the highest price that Liontown shares have traded at is $2.84.

What does Goldman really think of Liontown shares?

Interestingly enough, Goldman analysts actually aren’t that keen on Liontown shares.

In fact, they foresee a 45% drop from here.

In its most recent broker note on Liontown shares, published one day after the takeover news, Goldman issued a neutral rating with an unchanged 12-month share price target of $1.50.

Goldman noted the key risks included construction and commissioning risk, cost inflation, lithium prices, macro risks, growth, and mergers and acquisitions.

In the note, Goldman said:

While we like the outlook for the ramped up [flagship Kathleen Valley Lithium Project] and future optionality, we rate LTR a Neutral on:

(1) Valuation: LTR is trading at a discount to our NAV following recent share price performance, and remains at a discount to peers on both implied LT spodumene price and EV/reserves, while also having the second highest valuation sensitivity to our LT lithium pricing

(2) Strong capacity outlook, though pre-construction: Once ramped up to 500ktpa, Kathleen Valley will have a competitive scale (before expanding to 700ktpa toward the end of the decade)

(3) Rapid de-leveraging post-ramp up supports future growth and capital returns: We expect LTR to return to net cash by FY27E, and see optionality around the proposed timing of a downstream development, though capital returns lag peers with already operating projects.

At the time of writing, Goldman is no longer a substantial holder of Liontown shares.

This does not necessarily mean it has sold out of Liontown completely.

What’s the latest on Albemarle?

Two days after Liontown announced its rejection of the offer, the company issued a statement revealing Albemarle had near doubled its stake from about 2.2% to 4.3% (that’s less than Goldman has held recently).

Liontown said Albemarle had requested a copy of the register in order to contact shareholders directly about its offer.

On Tuesday, Liontown hosed down media speculation that it had received an offer from another suitor.

Broker Bell Potter has a $3.35 price target on Liontown shares.

As my Fool colleague James reports, the broker reckons Albemarle’s bid was “reasonable, but not full”.

Liontown released a new investor presentation on Tuesday.

The post Goldman Sachs is selling off its Liontown shares. Here’s the lowdown appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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