IGO Ltd (ASX: IGO) shares have been hammered over the past 12 months.
Due to significant weakness in the battery materials space, the ASX 200 lithium stock has lost over 60% of their value.
But every cloud has a silver lining. The silver lining here is that Goldman Sachs believes this has created a very attractive buying opportunity for investors.
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What is being said about this ASX 200 lithium stock?
Goldman notes that IGO released its quarterly update this week and delivered a result ahead of expectations.
Impressively, despite the significant decline in lithium prices, the broker believes IGO is generating enough cash to be able to continue paying dividends. It commented:
IGO reported Greenbushes production/sales beats supporting a larger than expected dividend from the JV (in conjunction with a Windfield receivables unwind/ enhanced liquidity on refinanced debt), offsetting softer FY24 group underlying EBITDA for a FCF beat. Net cash of A$486mn implies increased liquidity to ~A$1.1bn, where we forecast a ~A7cps final dividend (bottom end payout) with cash likely reserved into the strategy/corporate review.
Big returns
In response to the quarterly update, Goldman has retained its buy rating with a trimmed price target of $6.75 (from $7.15).
Based on where the ASX 200 lithium stock currently trades, this implies potential upside of 22% for investors over the next 12 months.
Why is it bullish?
Goldman continues to rate IGO as a buy due partly to its attractive valuation. It explains:
Valuation: On our LT spodumene price of US$1,150/t IGO is trading on 0.75x NAV (~0.8x excl. Ni) and pricing ~US$925/t spodumene, at a discount to peers (~0.95x NAV and ~US$1,150/t), with near-term FCF yields remaining >5% and attractive vs. peers (<0% on average) and supporting ahead of peer capital returns.
In addition, the broker likes the lithium stock due to its low cost lithium operations. It adds:
Greenbushes is the lowest cost lithium asset in our coverage; Production growth more than offsets increasing strip ratio: The addition of CGP3 (under construction) and CGP4 (planned) should take Greenbushes production capacity from ~1.5Mtpa today to ~2.4Mtpa (excluding tailings processing of ~0.3Mtpa), and they are planned to be funded from existing Greenbushes debt facilities, combined with Greenbushes cash flows (though we factor in below nameplate).
We reiterate our belief that further Greenbushes expansion remains one of the most economically compelling brownfield lithium projects, where the JV also retains significant optionality around extending/converting the TRP, while the resource likely underpins even further expansion (i.e. CGP5, subject to market conditions). Further, we note on our mass balance analysis that JV partners may need further Greenbushes expansions.
Overall, Goldman appears to believe that this could make IGO a great ASX 200 lithium stock to buy if you are looking for exposure to this side of the market.
