Livent (LTHM US) ("Livent Corp") is a profitable company that produces lithium. Fmc Corp (FMC US) will be spinning off its lithium business (Livent) through this IPO in the US. Livent is planning to raise about US$100 million in an IPO to be completed in the next few weeks.
Despite some negative sentiment on the lithium-related stocks in recent months, there will likely be a solid interest in the Livent IPO mainly due to three major factors: 1) It is one of the few large scale, global lithium producing companies with positive EBITDA and earnings. 2) Livent is a pure-play, global, leading company in the lithium production. 3) Most of its major competitors are also non-North American based companies and investors typically place some discount on these Chinese/non-North American based companies partly due to corporate governance risks.
Livent Corp's main products include lithium hydroxide, butyllithium, and high purity lithium metal. Its lithium related products are used in a wide variety of applications including in the electric vehicle (EV) lithium-ion batteries.
Production capacity ramp-up - The company had an annual production capacity of 18.5 kMT of lithium hydroxide at the end of 2017 and it plans to increase this production capacity to 55 kMT at end of 2025, representing a CAGR of 14.6% during this period. By end of 2019, the company plans to increase its production of annual lithium hydroxide to 30 kMT.
Competition - It is estimated that the global supply of lithium compounds was 270 kMT in 2017. Six producers including Livent, Albemarle Corp, Sociedad Quimica y Minera, Tianqi Lithium Corporation, Jiangxi Ganfeng Lithium Co. Ltd., and Orocobre Limited represented 86% of total lithium compounds supply in 2017.
Strong sales and profit growth - The company's sales increased 32% YoY to US$347.4 million in 2017 and its sales increased even faster at 51% YoY to US$210.7 million in 1H18. Capitalizing on the company's economies of scale, its operating margin improved from 22.3% in 2016 to 29.2% in 2017. Its operating margin increased even further from 24.9% in 1H17 to 39.7% in 1H18.
Reduced valuation expectations - Back in February 2018, the company was planning to sell of around 15% of its lithium business trying to raise about US$500 million, which would put a value of more than US$3.0 billion. However, a lot has changed in the past six months and investors are likely to place much lower valuations for Livent Corp in the coming weeks.

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