Iuri Gagarin/iStock via Getty Images
explanation
I believe in Li-Cycle (NYSE: LICY) is worth $3.2 billion and is up up to 220% since the date of writing. LICY is a leading company in the lithium-ion battery resource recovery and lithium-ion battery resource recovery market.they have their own technology Being able to track the battery recycling process from start to finish allows you to be involved in the entire process. Also, they partner with the government and most importantly have a strong customer base that ensures a steady stream of income.
Company Profile
LICY is the industry leader in lithium-ion battery recovery and leads the North American lithium-ion battery recycling market.
Unique “spoke and hub” model
What LICY does is very attractive. Basically, under the “spoke and hub” process, spent batteries and battery-related waste are brought to the spoke location. At the spoke position, the material is mechanically refined into various intermediate products to form black lumps. The black mass is a dust-like substance made up of quite a few important metals, including lithium, cobalt, and nickel. All black blobs from different spoke locations are collected at the hub location. At the hub location, the black mass undergoes a hydrometallurgical process to produce the final product. The final product is sold back to the battery chain at the end of the day and used to make new lithium-ion batteries.
LICY operates two types of hubs. First, there’s the Ternary Hub, which uses their technology to deal with all sorts of black blobs. His second type of hub is lithium iron phosphate. [LFP Hub], using their technology, can process any kind of black mass to produce LFP cathode related end products. This black lump can also come from LFP Lithium Ion batteries, LFP Lithium Ion battery materials, or third parties. These LFP Lithium Ion batteries have historically been batteries that are not easily recyclable in the market compared to other Lithium Ion batteries. LICY’s plan is to change the status quo in the recycling industry and turn these batteries into a valuable resource.
It doesn’t take a genius to realize that their recycling process is playing a key role in the global transition to renewable energy. They achieve this goal by providing an environmentally friendly alternative to energy-intensive pyrometallurgical processing methods and by providing a stable supply of recycled materials to the battery supply chain.
One of the advantages of LICY is its low production costs compared to the mining and processing costs available from suppliers producing these same materials. This is due to the ability to produce many materials from one process, with little waste compared to conventional mining, and no displaced soil or tailings.
Proprietary technology that sets us apart from our competitors
The ability of LICY’s proprietary technology to adapt to new battery chemistries and their entry into the recycling process sets them apart from the competition. Cathode precursor input chemistries, cathode input chemistries, and raw materials that can be reused in batteries or the broader economy are all manufactured in their own way. However, new technologies such as cathode-to-cathode recycling create products at higher risk of obsolescence due to constant improvements in cathode technology.
Cash flow from existing commercial supply agreements reduces liquidity risk
Major players in the EV and lithium-ion battery ecosystem, as well as leaders in consumer electronics, manufacturing scrap, and OEMs are included in commercial deals. Together, these factors account for over 70 of his LICY customers and, according to available market analysis, control approximately 30% of the North American market (based on LICY’s S-1 filing).
strong government relations
As a result of working with New York State, they are now able to offer attractive financial incentives to investors in the clean energy sector. Eastman Kodak Business Park in Rochester, New York is home to one of LICY’s spoke facilities, and the city is also where the company plans to locate its first ternary hub shop.
After years of building relationships with various Canadian government agencies, LICY was awarded a grant and given access to a number of programs to support its growth.
Future offtake opportunities to further drive revenue growth
Construction is finally complete and is expected to ramp up production at LICY’s Rochester hub by early 2023. They also signed a marketing, logistics and working capital agreement with Traxys covering 100% of Nickel Sulfate, Cobalt Sulfate and Lithium Carbonate. , manganese carbonate, and graphite concentrate finished products from Rochester Hub. Their aim is to get customers to purchase copper sulfide, sodium sulfate, gypsum produced by Hub and anything not currently covered by Traxys’ contract.
evaluation
We believe LICY is worth US$3.2 billion in FY24, up up to 220% since the date of writing.
This value is derived from my model based on the following assumptions:
- Revenue growth follows management’s medium-term guidance (to FY25). Quite frankly, growth is pretty hard to quantify. Management guidance is also only proxy, but it’s for the best.
- LICY could trade at a higher multiple in FY24 than it does today given a much higher revenue base, shorter timeframes to monetization and a more established business model. I think that there is a nature. But that’s an uncertainty I don’t want to assume. So I think it will trade at least at the same level as it did today.
GS Investing Quotes
main risk
Depends on efficient procurement of lithium-ion batteries
If LICY cannot economically and efficiently locate and recycle lithium-ion batteries and lithium-ion battery manufacturing scrap, it is on the brink of bankruptcy. If they fail to meet the standards of what they normally do, it will only affect them financially and may lead them out of business.
Future growth can be expected depending on the penetration rate of EVs
The company’s recycling services are driven in part by the projected increase in demand for EVs. Therefore, a decline in EV penetration could reduce demand for LICY’s services. A decline in existing contracts or the inability to find new supplier relationships can negatively impact your business.
Overview
I believe LICY is undervalued at its current share price at the time of this writing. Investing in LICY has many benefits for investors. First, their aim is to source and recycle lithium-ion batteries in an environmentally friendly manner and, most importantly, at a low cost. That’s what sets us apart from other competitors. Moreover, their income is expected to increase significantly in the coming years.
