RE:RE:RE:RE:RE:RE:Price Target upAugust 10, 2022...Andrew Wong still has $20 CAD price target
Our view: We think Largo reported a solid quarter as results came in above estimates, supported by higher realized pricing, although positive results were anticipated given pre-released operating numbers that were slightly above expectations. However, the strong quarter may be offset by recent weakness in vanadium prices due to broad macro pressures, and the revised guidance with lower production, higher costs, and a delay in expected commissioning of the TiO2 plant. We maintain our positive view on Largo shares due to significant potential unlocked value, although execution remains key to realizing this potential and recent vanadium price weakness may be a near-term headwind.
Actual: $0.28 EPS | RBCe: $0.19 | Cons.: $0.25
Summary: Q2/22 results were above RBCe and consensus estimates on a higher than expected average V2O5 sales price offset by slightly higher than expected costs, while production and sales volumes were pre-released. Largo's average selling price in the quarter came in above our estimate ($11.69/lb V2O5 actual vs. $9.72/lb V2O5 RBCe) and 5.5% above the average quarterly EU vanadium price ($11.08/lb). Cash operating costs excluding royalties were slightly higher than our estimates (US$4.23/lb V2O5 sold actual vs. US$4.18/lb V2O5 sold RBCe). Consulting fees and G&A expenses were also higher than expected ($12M actual vs. $10M RBCe), due to costs connected to Largo Clean Energy and the Largo Physical Vanadium fund along with management turnover costs and an increase in legal provisions. Guidance Update: Largo revised 2022 guidance, lowering production expectations due to operational impacts earlier in the year and increasing operating costs due to inflationary pressures.
Largo is guiding towards 11.0 to 12.0kt of V2O5 eq. production (11.8kt RBCe) vs 11.6 to 12.4kt previously. Largo now expects cash operating costs excluding royalties of $4.10 to $4.50/lb V2O5 (4.04/ lb RBCe) vs. $3.90 to $4.30/lb previously.
Capex at the ilmenite concentration plant and the TiO2 processing plant was also adjusted downwards to account for expected payment timing, and the expected start-up of the TiO2 plant has been delayed to H1/25, from H2/24.