Based on its Q1/23 results, Largo Inc. (LGO:TSX; LGO:NASDAQ) had its target price by Paradigm Capital lowered to CA$15 per share from CA$16, analyst Gordon Lawson reported in a May 11 research note.
Return Still Attractive
Despite being reduced, the target price still implies a notable return for investors from where Largo is now trading at CA$5.36 per share. The Canadian company remains a Buy.
Lawson commented, "Our thesis on Largo is threefold: a positive outlook on vanadium prices, the low-cost [vanadium] Maracás mine, and upside to our net asset value from several ongoing growth projects."
Results Overall a Mix
Lawson presented Largo's Q1/23 results and compared them to the same from the last quarter and from a year ago. Generally, YOY, production was down, and sales and costs were up.
Operationally in Q1/23, Largo produced about 2,100 tons of vanadium equivalent (2.1 Kt V2O5 Eq), 5% more than in Q4/22 but 13% less than in Q1/22. Largo cut production during Q1/23 by about 1.5 Kt V205 Eq because it was infill drilling the Campbell pit at its Maracás project in Brazil.
Paradigm's Lawson commented, "Our thesis on Largo is threefold: a positive outlook on vanadium prices, the low-cost [vanadium] Maracás mine, and upside to our net asset value from several ongoing growth projects."
Largo's sales of V2O5 Eq during Q1/23 were 2.8 Kt, down 2% QOQ but up 28% YOY.
Q1/23 cash costs came in at US$5.15 per pound (US$5.15/lb), the same as in Q4/22 but up 30% from US$3.97 per pound in Q1/22. Campbell pit drilling accounted for about US$0.20/lb of the rise in cash costs, Lawson noted.
Financially in Q1/23, Largo generated US$57.4 million (US$57.4M) in revenue. This figure was up QOQ and YOY, 21% and 35%, respectively. EBITDA was US$11.4M, down 5% YOY.
Adjusted earnings per share was (US$0.02), an improvement over Q4/22 and Q1/22.
FY23 Guidance Lowered
Largo revised its full-year 2023 (FY23) guidance such that it is worse than initial estimates. The company lowered expected production and sales and raised forecasted operating costs.
Specifically, anticipated FY23 production is now in the 9–11 Kt range; previously, it was 11–12 Kt. Expected FY23 sales are now 8.7–10.7 Kt versus 10.3–11.3 Kt initially.
As for its FY23 operating cost projection, Largo revised the upper end of the range to US$5.65/lb from US$5.25; the lower end remains the same at US$4.85/lb.
What To Watch For
Largo has a significant event expected to happen later this year, which could boost its stock price.
It is the commencement of ilmenite production, slated for Q3/23, at which time management will provide further guidance. Largo is expected to start selling its produced ilmenite in the subsequent quarter.
| Want to be the first to know about interesting Battery Metals investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
Important Disclosures:
1) Largo Inc. is a billboard sponsor of Streetwise Reports and has paid SWR a sponsorship fee between US$3,000 and US$5,000.
3)Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
For additional disclosures, please click here.
Disclosures for Paradigm Capital, Largo Inc., May 11, 2023
Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 3
months.
Paradigm’s disclosure policies and research distribution procedures can be found on our website at www.paradigmcap.com. Paradigm Capital Inc. research is available on Bloomberg, CapitalIQ, FactSet, and Thomson Reuters or at www.paradigmcap.com. Issued by Paradigm Capital Inc.
Paradigm Capital Inc. (PCI) is a research-driven, independent, institutional equity investment dealer focused on sectors and companies that have attractive long term secular growth prospects. PCI’s research is available on our website at www.paradigmcap.com. Please speak to your Sales or Trading Representative if you require access to the website. The analyst (and associate) certify that the views expressed in this report accurately reflect their personal views about the subject securities or issuers. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations expressed in this research report. Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined by revenues generated directly or indirectly from various departments including Investment Banking, based on a system that includes the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance and client feedback.
Analysts are not directly compensated for specific Investment Banking transactions. The opinions, estimates and projections contained herein are those of PCI as of the date hereof and are subject to change without notice. PCI makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. However, PCI makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions that may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this research report or its contents. Information may be available to PCI, which is not reflected herein. This research report is not to be construed as an offer to sell or solicitation for or an offer to buy any securities. PCI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. PCI may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. PCI is a member of The Toronto Stock Exchange, The TSX Venture Exchange and The Investment Industry Regulatory Organization of Canada (IIROC). Any products or services mentioned on this website are made available only in accordance with local law (including applicable securities laws) and only where they may be lawfully offered for sale. PCI will not open accounts except in jurisdictions in which it is registered.
To U.S. Residents: This report was prepared by PCI which is not subject to U.S. rules with regard to the preparation of research reports and the independence of analysts. PCI U.S. , affiliate of PCI, accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through PCI U.S.
