Albemarle (ALB 3.80%) and Live (LTHM 2.89%) This week reported their results for the third quarter of 2022. As a result, investors can now compare the performance of the two major lithium producers in the lithium business.
There are a few things to keep in mind, including that long-term investors shouldn’t put too much weight on individual quarter performance. Second, qualitative factors are as important as quantitative ones. Finally, Albemarle has businesses other than lithium, so its performance is also affected by its performance. Even with these caveats, the data in this article should help you make better investment decisions in the lithium space.
Interest in lithium stocks has surged over the past year or so, as investors have taken note of the fact that established lithium players have been driving revenue and profit growth. These properties are primarily driven by the electric vehicle (EV) revolution, as lithium is used to produce the lithium-ion batteries that power EVs. Demand for the material has consistently outstripped supply, which has sent prices soaring.
Lithium business revenue growth
|
company |
2022 Third Quarter Results |
|---|---|
|
Albemarle |
$1.5 billion, up 318% year over year |
|
Live |
$231.6 million, up 124% year over year |
Data source: Company earnings reports.
Winner: Albemarle
US-based Albemarle took home the gold medal in the category (or should it be a lithium medal?). Revenue growth for both companies has been phenomenal, but Albemarle outpaced its U.S. peers.
Albemarle’s year-over-year revenue growth in the third quarter was primarily driven by higher realized lithium prices, although higher volumes contributed 20% to total growth. Livent’s growth was driven by higher realized lithium prices, as the company won’t have any significant new capacity coming online until next year.
Lithium business profit growth (using adjusted EBITDA)
Both companies use the same metric to measure their overall company profitability: Adjusted EBITDA (earnings before interest, tax, depreciation and amortization). Albemarle uses the same metric to measure the profitability of its three business units.
|
company |
2022 Third Quarter Results |
|---|---|
| Albemarle |
$1.11 billion, a year-on-year increase of 786% |
| Live | $110.8 million, up 644% year over year |
Data source: Company earnings reports.
Winner: Albemarle (although it seems fair to call this a draw too)
Albemarle wins here, even though both companies have stellar numbers in this profit growth category. However, I wouldn’t argue with anyone who thinks this category should be considered a draw. Indeed, the numbers are about the same.
The note below addresses Livent’s adjusted EBITDA. It also works in this category, but should have less of an impact in this category.
Lithium business margin (using adjusted EBITDA)
Adjusted EBITDA margin is calculated by dividing this metric by revenue.
|
company |
2022 Third Quarter Results |
|---|---|
| Albemarle | 74% |
| Live | 48% |
Data source: Company earnings reports.
Winner: Albemarle
Albemarle is the clear winner here, although Livent’s profitability is also staggering for an industrial company.
This comparison isn’t exactly apples to apples, but it’s the best we can do. The result is that Livent’s lithium business is a bit more profitable than the numbers above suggest, but we don’t know how much.
Explanation (skip this paragraph if you don’t want to go into depth): Albemarle has broken down its company adjusted EBITDA by segment (lithium, bromine, and catalysts) and by company. The latter is a negative number. Livent only provides corporate adjusted EBITDA because it has only one business unit. In other words, negative Adjusted EBITDA from its non-revenue-generating corporate business is included in the Adjusted EBITDA figure it provides. As a result, adjusted EBITDA for its lithium business will be slightly higher than indicated in this article.
Size of lithium business relative to overall business
This category is not suitable for selection of winners and is therefore not included in the scoring.
|
company |
Lithium business as a percentage of total revenue, Q3 2022 |
Lithium as a percentage of total adjusted EBITDA, third quarter 2022 |
|---|---|---|
| Albemarle | 72% |
93% |
| Live | 100% | 100% |
Data source: Company earnings reports.
Winner: N/A
Investors looking for a pure lithium business should clearly favor Livent. Those who like diversity should lean towards Albemarle. Some variety is usually a good thing. Putting all your eggs in one basket tends to increase a company’s risk profile.
The winner is… Albemarle.
The face-off was one with Albemarle sweeping all three scoring categories. But keep in mind the few caveats mentioned at the top of the article.
There are other factors to consider, including financial liquidity and dividend policy (Albemarle pays a small dividend, while Livent pays no dividends).