Largo Inc T.LGO

Can they meet the analyst consensus expectation for Q3 EPS?

[kha341]

1) Q2-21 Actuals

Revenue = US$54.3M

Total Costs = US$40.1

Net Income before tax (including FX gain of US$3M ) = US$14.2M

Net Profit Margin (including FX gain of US$3M) = 26%

2) Q3-21 Analyst consensus EPS estimate

The current Mean EPS estimate for Q3-21 = C$0.40 = ~US$0.31 or an estimated Net Income of (C$0.40 x 64,566,769 o/s shares) = C$25.8M = US$20.0M

Can Management meet the analyst consensus expectation for EPS in Q3?  

3) Q3-21 Back-of-the-envelope

Assuming Production = ~6.8M pound (same as Q2-21)

Assuming Sales = ~6.7M pounds (same as Q2-21)

Assuming average per pound of “equivalent V2O5” = ~US$9.30

Estimated Revenue =  US$9.30 x 6.7M pounds = US$62.3M

To get a Net Income of US$20M from a Revenue of US$62.3M our Total Costs must stay around US$42.3M in Q3-21 or ~5% higher than the Q2-21’s US$40.1M providing that we will have the same FX gain of 3M as in Q2-21

4) Now let’s have a comparison between the Total Costs (excluding FX gain / loss) of Q1-21 and Q2-21:

 

The jump in Operating Costs had to be due mainly to the increase in production from 4.4M pounds in Q1-21 to 6.7M in Q2-21 and to the fact that Largo, according to Cleave, “sold a fair amount of purchased vanadium and you don't make the same kind of margins on that product as you would do on your own products” (i.e “purchased vanadium” costs more than vanadium produced in-house). Cleave also said “I think we will see improvements in earnings in Q3 and Q4 because we didn't sell quite as much of our produced vanadium in this quarter as we would have liked”.

So I believe that there is a real possibility for both the operating and non-operating costs to be reduced in Q3-21. If Management could do it then the Total Costs of Q3-21 could be brought down to below US$40M (i.e below the US$42.3M required for us to reach the Mean EPS in our scenario). The only unknown variable is the FX gain / loss which is very hard to estimate. Furthermore I don’t think that they will book any tax expenses in Q3 at all. 

5) Conclusion
Imho it is likely that Management can meet the analyst consensus expectation of C$0.40 for EPS in Q3-21.

P.S. I understand that the Mean EPS for Q3-21 = C$0.40. Am I wrong?
According to Yahoo Finance Mean EPS = C$0.36 (based on 2 analysts)
 

https://finance.yahoo.com/quote/LGO.TO/analysis?p=LGO.TO

DYODD

[kha341]

EPS Mean Estimates (From Thomson Reuters)

[ninja123]

thank you. always helpful!  would it not also be logical that LGO management, leveraging Ian's communication skills and presence, together with EC, simply communicate more effectively with the street so that EPS guesstimates are more inline with reality going forward... following the recent price action due to supposidely one off increases in cost, perhapsthese EPS guesstimates will be

[Clipper2]

Terrific post kha. If V2O5 stays @ $9.80 for the remainder of the Q3 we could see the avg. price for the quarter to be in the region of $9.60, and this would add approx. another 2m to Revenue. GL

[kha341]

Indeed, in our scenario, an increase of US$0.30 per pound of V2O5 equivalent sold will add US$2M to Revenue which will translate into US$2M additional in Earnings as costs stay unchanged. 

[Drhoho]

Kha, my compliments for such a well thought out and valuable post as we look forward to Q3 and then to Q4 and full year 2021 numbers. I, for one, share your analysis and feel positive about LGO managing their V2O5 production, marketing and sales.