Morningstar | Following Albemarle's Lower Long-Term Chilean Lithium Production Forecast, We Reduce Our FVE to $131. See Updated Analyst Note from 09 Nov 2018
Albemarle reported decent third-quarter results as higher bromine and catalysts results drove an 18% year-on-year adjusted EBITDA growth to $235 million. However, in its earnings presentation, Albemarle released a change to its long-term lithium production plan with lower lithium carbonate production from Chile. Having updated our model to reflect this change, partially offset by a higher near-term bromine outlook, we reduce our fair value estimate to $131 per share from $135 for narrow-moat Albemarle.In lithium, Albemarle announced that its planned capacity expansion in the Salar de Atacama Chile will only grow to 80,000 metric tons of annual production on an LCE basis by 2025, instead of the original forecast of 125,000 metric tons. Our forecast had only assumed Albemarle would produce around 95,000 metric tons of lithium carbonate from Chile, and we now assume the company will only produce 80,000 metric tons. Although management noted its preference to produce lithium hydroxide over lithium carbonate, we would prefer that the company continued with its plans to produce low-cost lithium carbonate at its cost advantaged Salar de Atacama and then build more carbonate conversion capacity at its North Carolina Kings Mountain lithium production plant.
In bromine, adjusted EBITDA grew 23% year on year to $79 million during the quarter. The profit growth was driven by higher prices and volumes and operating leverage from higher capacity utilization rates. Prices were up 7% during the third quarter versus a year ago. Much of the higher pricing is driven by Chinese capacity shutdowns reducing supply. While these shutdowns are temporary, we now expect Albemarle to continue to benefit from higher prices in 2019 and have increased our revenue growth and EBITDA margin forecasts to account as a result. Over the long term, however, we still see bromine prices falling and margins weakening as Chinese supply comes back online.
Albemarle is a global developer, manufacturer and marketer of chemicals across a range of end markets including energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals, crop protection and custom chemistry services. The company's segments include: Lithium, which develops and manufactures a range of basic lithium compounds and lithium specialties and reagents; Bromine Specialties, which includes products used in fire safety solutions and other chemicals applications; and Catalysts, which includes Clean Fuels Technologies, fluidized catalytic cracking catalysts and additives, and performance catalyst solutions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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