Li-Cycle: BMO cuts target after negative Q3 revenue

Li-Cycle (NYSE: LICY) recently announced its third quarter financial results. The company reported revenue of -$2 million; this was due to an “adverse non-cash fair market value (FMV) price adjustment of $(7.3) million related to prior period black mass sales”. This brought the company’s product sales segment to -$2.34 million and recycling services revenue to $0.373 million.

Operating expenses for the quarter were $32.5 million, including $4 million in stock-based compensation, and $9.5 million in salaries and benefits. Professional fees amounted to $4.2 million. This brought the company’s net income to -$27.5 million, or earnings per share of -$0.16.

The company ended the quarter with $649 million in cash and about $285 million in long-term convertible debt. The company said it continues to evaluate multiple sources of capital, such as debt and funding from potential strategic partners.

Li-Cycle currently has eight analysts covering the stock with a 12-month average price target of US$10.13, up 61%. Of the eight analysts, two have strong buy ratings, four have buy ratings, and the last two analysts have hold ratings. The high street price target sits at US$13 and represents an upside of 107%.

In BMO Capital Markets’ earnings note, they reiterated their outperform rating, but cut their 12-month price target to $10 from $12, saying they recognize the stock could go down. trade sideways until the completion of the Rochester Hub plant, which is expected towards the end of 2023, and expects there to be more growing pains ahead.

Even with that, writes BMO, “Li-Cycle is still a well-capitalized pioneer as a Western battery recycler; is well positioned to benefit from various government-led OpEx/funding assistance programs to deploy in the short term; and is backed by additional support given to its Tier 1 partners.”

Following these earnings, BMO revised its expectations for future earnings. They now expect EBITDA to be $225 million in 2025 with an EBITDA margin of 44%. Additionally, with the Rochester Hub expected to be completed by the end of 2023, they expect a company to de-risk in 2024.

As a result, BMO now expects hub-2 start-up to occur approximately 2-3 years after completion of the Richester hub. Additionally, they expect Li-Cycle to receive a 10% OpEx subsidy for their recycling plants in the United States. The subsidies will be primarily for processing costs and not for the raw material of battery metals.

Below, you can see BMO Capital Markets’ updated estimates on Li-Cycle.

Information for this briefing was found via Edgar and Refinitiv. The author has no security or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author holds no license.

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