Based on its Q1/23 results, Largo Inc. (LGO:TSX; LGO:NASDAQ) had its target price by Paradigm Capital lowered to CA$15 per share from CA$16, analyst Gordon Lawson reported in a May 11 research note.
Despite both quarter-over-quarter (QOQ) and year-over-year (YOY) increases in Q1/23 revenue, Paradigm's Lawson described the vanadium company's first quarter results as "disappointing, largely owing to a significant decrease in 2023 production guidance and a subsequent increase in cash costs."
Return still attractive
Despite being reduced, the target price still implies a notable return for investors, of about 118%, from where Largo is now trading, at CA$6.87 per share. The Canadian company remains a Buy.
Lawson commented, "Our thesis on Largo is threefold: a positive outlook on vanadium prices, the low-cost [vanadium] Maracás mine and upside to our net asset value from several ongoing growth projects."
Results overall a mix
Lawson presented Largo's Q1/23 results and compared them to the same from last quarter and from a year ago. Generally, YOY, production was down, and sales and costs were up.
Operationally in Q1/23, Largo produced about 2,100 tons of vanadium equivalent (2.1 Kt V2O5 Eq), 5% more than in Q4/22 but 13% less than in Q1/22. Largo cut production during Q1/23 by about 1.5 Kt V205 Eq because it was infill drilling the Campbell pit at its Maracás project in Brazil.
Largo's sales of V2O5 Eq during Q1/23 were 2.8 Kt, down 2% QOQ but up 28% YOY.
Q1/23 cash costs came in at US$5.15 per pound (US$5.15/lb), the same as in Q4/22 but up 30% from US$3.97 per pound in Q1/22. Campbell pit drilling accounted for about US$0.20/lb of the rise in cash costs, Lawson noted.
Financially in Q1/23, Largo generated US$57.4 million (US$57.4M) in revenue. This figure was up QOQ and YOY, 21% and 35%, respectively. EBITDA was US$11.4M, down 5% YOY.
Adjusted earnings per share was (US$0.02), an improvement over Q4/22 and Q1/22.
FY23 guidance lowered
Largo revised its full-year 2023 (FY23) guidance such that it is worse than initial estimates. The company lowered expected production and sales and raised forecasted operating cost.
Specifically, anticipated FY23 production is now in the 9–11 Kt range; previously it was 11–12 Kt. Expected FY23 sales are now 8.7–10.7 Kt versus 10.3–11.3 Kt initially.
As for its FY23 operating cost projection, Largo revised the upper end of the range to US$5.65/lb from US$5.25; the lower end remains the same at US$4.85/lb.
What to watch for
Largo has a significant event expected to happen later this year, which could boost its stock price.
It is the commencement of ilmenite production, slated for Q3/23, at which time management will provide further guidance. Largo is expected to start selling its produced ilmenite in the subsequent quarter.
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