Buy, hold, or sell? What is Goldman Sachs saying about Liontown shares?

Liontown Resources Ltd (ASX: LTR) shares have fallen hard this week.

A disappointing update on the Kathleen Valley Lithium Project sent investors to the exits in their droves.

Investors may now be wondering if this is a buying opportunity. Let’s see what Goldman Sachs is saying about the lithium developer.

What is Goldman saying about Liontown shares?

Goldman has been working through the update and appears a touch concerned with the company’s funding predicament following the termination of its $760 million debt package.

Although the broker believes the company can get by on lower funding, how much it requires will come down to where lithium prices trade. It explains:

LTR anticipate working capital/ corporate cost requirements of ~A$150-200mn through ramp up, where on our gradual ramp up profile/spodumene pricing (~US$800/t) we estimate LTR requiring further funding of ~A$200mn (previous target of ~A$460mn in fresh debt). As a downside scenario, a further ~25% decline in our near-term spodumene prices to ~US$600/t would imply a further ~A$300mn may be needed to get to positive FCF in ~CY27, though we expect in this scenario other measures may be utilised to preserve capital (selective/reduced mining, processing ore stockpiles, etc.).

But are its shares a buy?

Goldman is sitting on the fence with its recommendation at present.

Although the broker sees enormous value in Liontown’s shares at current levels, it doesn’t appear willing to put a buy rating on them.

According to the note, it has retained its neutral rating with a target price of $1.45 (from $1.65). This implies potential upside of 54% for investors over the next 12 months. It explains:

Our NAV [net asset value] is down to A$1.36/sh (pre-risking), where LTR is trading at a discount to our revised NAV at ~0.75x and an implied LT spodumene price of ~US$950/t (peer average ~1x & ~US$1,150/t), with a high valuation sensitivity to our LT lithium pricing. However, we see LTR pricing further uncertainty on funding into the possibility of further lithium price declines/volatility, and remain Neutral.

The post Buy, hold, or sell? What is Goldman Sachs saying about Liontown shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro 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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