In Brief: Lithium, Webjet Split, Retailers In Focus

This story features PATRIOT BATTERY METALS INC, and other companies. For more info SHARE ANALYSIS: PMT

Lithium prices to remain under the pump as global supply growth continues; Webjet’s break up won’t have shareholders crying, and retailers in focus for an improving sales trend and digital momentum.

-Is CATL a red herring in the lithium market?
-WebBeds aspiring to premium valuations
-Foot traffic and retail sales are improving 
-Australian retailers investing for digital growth

By Danielle Ecuyer

Quote of the week comes from Oxford Economics

“The 50bps cut sends a strong signal that central banks are shifting back towards business as normal, and that their focus is becoming more forward looking and less focused on the latest inflation numbers. This supports our expectation of steady and sustained rate cuts from here.”

Lithium prices and supply don’t add up

UBS analysts have been investigating lithium supply dynamics across geographies including China, Africa and Latin America. Forecast lithium supply is expected to grow 36% in 2025 or an incremental 490kt lithium carbonate equivalent and by another 22% in 2026 which remains in contrast to the low-price backdrop.

Despite a reprieve last week from CATL’s “surprise” announcement to alter production at its Jiangxi lepidolite mine, UBS is cautious on China lepidolite growth and anticipates it will represent 26% of global supply growth in 2025.

Domestically, the analyst is forecasting 97kt incremental volume from Australia or around 20% of the 2025 growth estimates due to the ramp up at Kathleen Valley and Mt Holland.

In contrast, an extensive African trip by the broker has underwritten a higher expectation on the “stickiness” of supply. Africa is responsible for 22% of forecast 2025 supply with the spot price still above production cost.

Chile’s sliding royalty scale is highlighted for the cost implications to SQM and Albemarle. UBS points to the increasing supply growth out of LATAM which could reach circa 23% of supply growth in 2025.

UBS remains Underweight the sector with projected spot prices of around US$750t for 2024/25/26 to help rebalance the market.

The broker is Buy rated on Patriot Battery Metals ((PMT)); Neutral on Arcadium Lithium ((LTM)) and Sell rated on IGO Ltd ((IGO)), Liontown Resources ((LTR)) and Pilbara Minerals ((PLS)).

Breaking up is not hard to do

Webjet ((WEB)) is in focus for Wilsons with this week’s approval by shareholders for the de-merger of WebBeds and the company’s Business-to-Consumer (B2C) operations.

Completion is expected on September 30 with shares in Webjet B2C commencing trading on October 1. The broker considers Expedia, Booking Holdings and Airbnb are the most relevant comparisons to value WebBeds while stressing there are no “pure-play bed banks” listed.

A suggested value for WebBeds ranges between 15-20x FY25 EBITDA or an equity value of between $2.6bn to $3.4bn. But considering the “pure play” characteristic with high growth rates and margins, Wilsons assesses there is upside to the valuation range.

In the ASX universe, the analyst opines travel companies are most comparable to Webjet B2C but for WebBeds appropriate comparisons are seen with Pexa Group ((PXA)), REA Group ((REA)), Domain Holdings Australia ((DHG)) and CAR Group ((CAR)).

Internationally, the analyst assesses eDreams ODIEGO, lastminute.com and Despegar.com as the best comparisons for Webjet B2C as an online travel agency with a high percentage of flight bookings. Domestic comparisons include Flight Centre ((FLT)), Corporate Travel ((CTD)) and HelloWorld Travel ((HLO)) suggesting a valuation range of 5x to 7.5x FY25 EBITDA or around a 15x to 21x FY25 price-to-earnings ratio.

This equates to an equity valuation of circa $270m-$370m with downside risks.

Applying these valuation estimates to the current Webjet valuation offers a range between a -2% decrease to a 28% increase at a $7.73 share price.

Wilsons retains an Overweight rating with a target price of $9.59. Among FNArena’s daily monitored brokers, the average share price target is $9.864 with five Buy-equivalents and two Hold-equivalent ratings.

Let’s go shopping

Citi steps in the latest foot traffics/sales for small cap retailers in footwear/clothes/accessories and housing related goods post the FY24 reporting season updates.

The broker concludes the data support strength from footwear and housing-related retailers which have performed better than clothing in the first seven weeks of FY25 from a sales performance perspective.

In the US-based clothing/accessory retailers, the analyst notes available data suggest an improvements in sales.

The broker observes sales momentum at Accent Group ((AX1) appears to have been maintained, with forecast 3.5% growth in like-for-like sales in 1H25 on the back of 3.5% growth in the first seven weeks.

The stock is Buy rated with a $2.57 target price.

Universal Store Holdings ((UNI)) may have seen some softening in the clothing segment, but Citi does not anticipate any major changes to the 1H25 like-for-like sales forecast of 10% growth. The analyst highlights management is adept at selecting on-trend products which has helped maintain sales momentum, noting the closure of 17 Glue stores as a potential positive. Buy rated with a $7.90 target price.

Scope for an uplift in Citi’s like-for-like sales forecast for Lovisa Holdings ((LOV)) in 1H25 might be on the cards as sales momentum looks to be improving in the US. The company has around 23% of its stores located in the US in FY24. Risks associated with a poorer performance from the recently opened lesser quality stores leads Citi to a Neutral rating and $32.16 target price.

When it comes to house-related goods, the broker is upbeat on Beacon Lighting Group ((BLX)) and Nick Scali ((NCK)) with sales momentum showing signs of improvement.

Citi’s economists are forecasting 75bps of interest rate cuts in 2025 which could be a macro tailwind for these companies. Both are Buy rated with a respective $3.12 and $16.53 target price for Beacon and Nick Scali.

Jarden also turns the focus on the Australian retail sector emphasising FY25 could be an “inflection” point for the sector. This broker concentrates on the “growing importance of digital engagement for broader retail”.

November retail sales are anticipated to reveal improving sales growth post a subdued period over July/August against the backdrop of tax cuts. Some 60% of Australians are delaying making purchases until “key cyber” events.

This year Cyber Monday is in December which could see increased promotional activity for the Christmas season.

Jarden sees increasing capital expenditure and operating investment across supply chains, range, and loyalty programs all designed to enhance the share of the consumers’ wallet and spend.

Australia is estimated to be between one and four years behind overseas locations when it comes to digital retailing, but the trend is positive with average online penetration year-to-date up around 40bps to 11.1% and  40bps against FY23.

Most of the increase has been evidenced in November because of cyber events like Black Friday. Fashion and homewares are the largest category purchased online during these events when sales peak. Sport/outdoor and fashion accessories exhibited the highest growth, all coming off a low base.

Citi believes Walmart provides some inspiration to Wesfarmers ((WES)), Neutral rated with $61.20 target, Woolworths Group ((WOW)), Overweight rated with a $38.60 target, and Coles Group ((COL)), Neutral rating, $17.70 target.

In terms of stock preference, the broker advocates companies with sustainable moats which continue to grow at scale with differentiated offerings, including Woolworths, Temple & Webster Group ((TWP)), Buy rated, $14.30 target, Flight Centre, Buy rated with $24.60 target, Treasury Wine Estates ((TWE)), Buy rated and $14.20 target price, with Wesfarmers offering opportunity.

Find out why FNArena subscribers like the service so much: “Your Feedback (Thank You)” – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms