CLSA adjusted its stance on Mineral Resources Limited (MIN:AU) (OTC: MALRF), downgrading the stock from Outperform to Hold and reducing the price target significantly to AUD41.50 from the previous AUD60.00.
The revision follows the company's FY24 financial results, which highlighted a robust revenue figure of A$5,278 million, surpassing the consensus estimates by 9%. Despite the strong revenue, concerns have been raised regarding the company's debt levels and profitability.
The earnings before interest, taxes, depreciation, and amortization (EBITDA) for Mineral Resources saw a 40% year-over-year decline, attributed primarily to weaker lithium prices. Concurrently, the company's net debt escalated to A$4.4 billion, driven by substantial capital expenditures. With the forecast for FY25 capital expenditures exceeding consensus predictions at A$1.95 billion, financial strain on the company is becoming increasingly apparent.
The lithium market has presented challenges that have not spared Mineral Resources. CEO Chris Ellison remarked on the industry's difficulties, stating that "no one is making money." As a result, the company has taken measures to reduce production and postpone non-essential capital expenditures. While the company has previously shown resilience in bullish markets, the current market conditions have proved more challenging.
The downgrade and new price target reflect the analyst's concerns about Mineral Resources' ability to navigate through the tough market environment, especially considering the projected rise in capital expenditures for FY25.
The company's recent performance and the broader context of the lithium market have led to this adjustment in the stock's outlook.
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