SQM Stock Overview
Sociedad Química y Minera de Chile S.A. produces and distributes specialty plant nutrients, iodine and its derivatives, lithium and its derivatives, potassium chloride and sulfate, industrial chemicals, and other products and services.
Sociedad Química y Minera de Chile S.A. Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$108.70|
|52 Week High||US$115.76|
|52 Week Low||US$46.13|
|1 Month Change||27.79%|
|3 Month Change||30.35%|
|1 Year Change||100.26%|
|3 Year Change||304.84%|
|5 Year Change||153.32%|
|Change since IPO||4,121.36%|
Recent News & Updates
When Should You Buy Sociedad Química y Minera de Chile S.A. (NYSE:SQM)?
Today we're going to take a look at the well-established Sociedad Química y Minera de Chile S.A. ( NYSE:SQM ). The...
SQM: A Core EV Value Chain Stock With High Growth And Low Valuation
SQM should grow LCE volumes 30% a year to YE25. As a low-cost producer, it has high margins and significant free cash flow. The stock is at a 30% discount vs. historical valuation and vs. peer Albemarle. My YE23 price target is US$143 +50%. SQM is a core holding Sociedad Química y Minera de Chile S.A. (SQM) is a long-term core holding in the EV (electric vehicle) sector with a 25% share of the global Lithium market. The company is a low-cost producer operating in Chile's Salar de Atacama with 20+ years of reserves. SQM should increase LCE (Lithium carbonate equivalent) capacity by 30% annually to YE25 and maintain market share leadership. Valuation is compelling at 8x EV/EBITDA, a 30% discount to 10yr average and its main peer Albemarle (ALB). LCE prices could decline in YE23 forward to US$20k/ton from over US$50k/ton today which still drives a US$143 price target for 50% upside. SQM Financial and Valuation Summary (Created by author with data from SQM) Peer Comparisons SQM compares well on many metrics vs relevant peers, including valuation, production, margins, and growth. Note that peer comps are based on consensus estimates. My estimates are below consensus, most likely due to lower long term LCE prices and perhaps fertilizer and potash pricing as well. Livent (LTHM) and Lithium Americas (LAC) have higher valuations and greater operating risk with mines based in Argentina. SQM peer comps with consensus estimates (Created by author with data from Capital IQ) EV and Lithium market overview USA, Europe, and China are mandating an end to ICE (internal combustion engine) new car sales by 2030-2040. The market estimates that this will push EV penetration to 30% of new car sales by YE30 vs 8.5% in YE21. This translates into about 1.9m tons of LCE or a 15% annual growth rate. There are many studies suggesting that EV metal capacity may hinder this target, which means that raw material suppliers are in the driver's seat and may dictate terms, seek high prices and long-term contacts, to assure capital returns. LCE market demand forecast (Created by author with data from IEA, Mckinsey and ACEA) EV Penetration and Unit Volume (Created by author with data from IEA and Mckinsey) LCE prices: Back to US$20k/ton LCE prices have climbed out of the lows seen during the pandemic shutdowns in mid-2020, increasing from US$6.5k/ton to US$50k/ton currently. This is due to basic supply demand equation: EV units sales grew 50% in YE21 and continue to perform, while the many EV battery production facility startups are all looking to lock in scarce raw materials. However, I do not think these price levels are sustainable and estimate a decline to the US$20k/ton level in YE23 going forward in line with a recent Fitch estimate. However, higher price as seen at Pilbara's (PILBF) Battery Exchange Market (see page 12), provide upside risk. Goldman Sachs LCE Estimates Goldman Sachs (GS) recently forecast that LCE price would drop to US$16k/ton in 2H22 and US$11k/ton in YE23. The rational is that supply / capacity is coming on fast and the market will go from deficit to over supply by end of YE23. Key to this assumption is a significant increase from Chinese lepidolite (mica) mines, a hard rock lithium resource different to traditional spodumene. This has about half the lithium concentration and thus has a higher cost to extract according to a white paper. The research also assumes significant capacity increase in Argentina, which poses high risk given capital controls, arbitrary regulation and 70% inflation. Goldman Sachs LCE Volume Forecast (Created by author with data from GS) Using GS estimated LCE prices the lepidolite based production would have around an 18% gross margin vs brines and spodumene of over 50%. Would that cover the cost of capital and provide a positive return? Perhaps not but Chinese companies may benefit from government subsidies or have lower return hurdles. Goldman Sachs LCE Price Forecast (Created by author with data from GS and Roskill) Gross Margin per LCE source mine (Created by author with data from SQM and Roskill) Impact on SQM: Using GS price forecast of US$16k/ton in 2H22 and US$11k/ton in YE23 forward reduces SQM EBITDA by 27% and a price target to US$100 for YE23. Political Risk: Impacts Valuation Much has been written and implied regarding SQM's political risk, which also applies to ALB. The fact is that both have concession agreements to YE30 with Corfo, Chile's development authority and this should not be altered. I have covered SQM since 1997 and have lived in Chile for over 15rys which I believe provides me with an educated insight into the political and regulatory situation. The government and a new constitution may attempt to establish a national champion to "compete" with SQM but this does not alter the company's growth plans or cost structure. Talk of stimulating "value added" production, such as battery assembly in Chile, is a positive. Post YE30 expropriation risk exists but it's very unlikely the government in power will have the funds or expertise to manage SQM and ALB. Plus, expropriation of any company kills future FDI (foreign direct investment). I view the main risk as increased taxation but quite frankly 2030 is just too far away to worry about or predict. SQM and ALB had similar EV/EBITDA valuations, averaging 12x until the end of 2020. The gap seen in ALB seems irrational given that both derive the bulk of EBITDA from Chile Lithium operations. My YE23 price target of US$143 is based on a reversion to mean of 12x EV/EBITDA for SQM.
SQM: A Diversified Play On The Current Lithium Boom
SQM offers investors the opportunity to invest in a company with a large and growing exposure to the lithium boom. The company is also well diversified into a number of other growth commodities unrelated to lithium. Although there are some risks, the company offers a fantastic dividend policy, and a surprisingly low forward P/E ratio given the growth prospects. Sociedad Química y Minera de Chile S.A. (SQM) is a Chilean business with global reach involved in the production and supply of chemicals, plant nutrients/fertilisers, lithium, iodine, and potassium. With all of these areas currently experiencing growth worldwide - with fertilisers and lithium being particularly in vogue - coupled with the company's fantastic financial position and its proclivity to issue generous dividends, I consider the recent run-up in the share price to be highly likely to continue. Although trucking primarily in commoditised spaces, the safety net this company offers in the form of its exposure to other growth commodities makes this a fantastic vehicle through which to gain exposure to the current lithium boom. I am therefore confident issuing a strong buy recommendation for the stock to be included as a small part of the speculative side of one's portfolio. In this article, I break SQM down into its main constituent parts - examining them individually for their position and growth potential - before reassembling it as a whole, and taking a holistic view of the company as a prospective investment opportunity. Lithium and Derivatives The mining of lithium and its derivatives represented 33% of SQM's revenue in 2021, and over 75% of the company's revenues in Q1 of 2022. Lithium production, principally for its use in battery technology, is one of the most patent growth areas visible to investors today. Battery storage is one of the main points of focus of green energy technology, and lithium is currently a crucial component of these batteries. Demand for lithium is set to continue at its blistering pace, with some questioning whether we even have enough lithium to make all the batteries that we need. Elon Musk said this week that lithium refining is a "license to print money", and I have previously written an article covering a lithium battery ETF which outlines some of the main reasons for growth of the trend. Lithium demand was recently predicted to grow at a staggering CAGR of 12% to 2030, but this figure could easily have underestimated the impending demand for the metal. One of the main drivers in the growth of demand for lithium is that it is an essential component in the batteries of electric vehicles (EVs). EVs are currently growing at approximately 40% to 80% per annum. With many governments setting directives phasing out the sales of legacy vehicles, as well as shifting consumer tastes towards EVs as charging infrastructure is built up, this structural demand driver for the vehicles makes this growth figure appear locked-in for the coming decades. Although there is the possibility to use other compounds in these battery technologies, with sodium-ion being touted as one of the front-runners in terms of its suitability as a potential replacement, this looks unlikely to occur in the near-to-medium future. 74% of lithium use worldwide is directed towards battery usage, and with just an 8% penetration of EVs, there is clearly a lot of room to go in this area. With the likelihood of its being used to store other green energy in addition to its use in EVs (such as for wind and solar energy), lithium seems a sure bet to continue its position of being in high demand for the foreseeable future. The recent surge in lithium prices has contributed significantly to SQM's stellar first quarter, and if we extrapolate those earnings out to the rest of the year, this leaves SQM with a forward PE of 7.93 - extremely low for a company exhibiting such growth trends as SQM does. Specialty Plant Nutrition SQM is a huge producer of specialty plant nutrition products, which in 2021 accounted for 31% ($909m) of its revenues. This consists principally of potassium nitrate, of which SQM is estimated to be the world's largest producer. Potassium nitrate is typically used for high-value crops (fruits, vegetables, flowers, etc.), and is touted as an ideal fertiliser for the rapidly shifting climatical conditions we are seeing throughout the world today. It is said to enable plants to be able to both better withstand droughts and extreme temperatures, and also to recover well after excessive rains and flooding. Fertiliser is a topical issue today with the ongoing situation in Sri Lanka, where their import was banned and farmers had to make do with homegrown substitutes, which led to massive crop failures. In addition to potassium nitrate, SQM also produces other specialty fertilisers, including sodium nitrate, sodium potassium nitrate, and other blends. Although perhaps not representing an issue quite as front-of-mind for the regular person as the company's lithium division does, the specialty plant nutrition department makes up a significant part of SQM's growth impetus. Worldwide vegetable production's CAGR has outpaced that of world population growth by 3 times the amount over the past decade. The fertiliser growth market is predicted to grow at a 2.6% CAGR up to 2030, and the demand for better-yielding, and less damaging, fertilisers than the more widely used commodity fertilisers looks likely to grow at an even faster clip. SQM's fertiliser division grew 29.5% between 2020 and 2021. It has a widely diversified customer base globally, reducing the risk of cyclicality or seasonality damaging revenue, and the current shortage of crops and inflation rates across the world can only serve to increase demand for higher-yielding fertilisers such as those this division of SQM offers to growers. It is also an area where the company can differentiate itself - a difficult task in a largely commoditised business - and exert brand power, which it does, targeting several different market segments through a portfolio of specialty plant nutrition brands. Iodine, Potassium, and Industrial Chemicals SQM estimate themselves to be the world's largest producer of iodine, with it representing 15% of their overall revenues, and 31% of total global sales of iodine by volume in 2021. The Y-O-Y sales figure for iodine grew by over 50% in Q1 2022 vs the same quarter in 2021. The main uses of iodine are in areas such as X-rays, LCD and LED screens, pharmaceuticals, and iodophors and povidone-iodine. Iodine revenue increased by 27% in 2021, and it represents another significant growth prospect for the company in terms of global growth rates - iodine growth is estimated to be in line for a 4.1% CAGR up to 2031. One issue with this business line is that their customers are relatively concentrated, with two customers each representing more than their total sales of iodine. None of SQM's suppliers represent more than 10% of their supply however, so they are unlikely to be hit by cost pressure on that end as a result of an overly-powerful supplier squeeze. Another 15% of SQM's revenue in 2021 came from their potassium division, which was a huge jump from their 2020 figures, representing 99% growth over the previous year's figures. This leapt another 89% in the Y-O-Y performance in the first quarter of this year vs Q1 of 2021, as demand for the commodity fertiliser exhibited significant growth. This product acts to complement SQM's offering of the higher-value-added specialty plant nutrition division and enables them to target other segments of customers. SQM estimate themselves to represent just 1% of the global market for potassium, so there is also significant room to grow this division of the company. 5% of SQM's revenues come from other industrial chemicals - these are mainly different grades of the products they offer to the agricultural markets. Industrial nitrates actually follow the same process as that used for agricultural nitrates, requiring just one additional step in the processing to qualify for this grade. This therefore represents a good source of optionality for the company - should there be a difference in the market prices offered for the products, they can easily switch production towards the more profitable end.
Is Sociedad Química y Minera de Chile (NYSE:SQM) A Risky Investment?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously...
|SQM||US Chemicals||US Market|
Return vs Industry: SQM exceeded the US Chemicals industry which returned -3.8% over the past year.
Return vs Market: SQM exceeded the US Market which returned -10.2% over the past year.
|SQM Average Weekly Movement||7.8%|
|Chemicals Industry Average Movement||6.7%|
|Market Average Movement||7.7%|
|10% most volatile stocks in US Market||16.9%|
|10% least volatile stocks in US Market||3.2%|
Stable Share Price: SQM is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 8% a week.
Volatility Over Time: SQM's weekly volatility (8%) has been stable over the past year.
About the Company
|1968||6,294||Ricardo Ramos Rodríguez||https://www.sqm.com|
Sociedad Química y Minera de Chile S.A. produces and distributes specialty plant nutrients, iodine and its derivatives, lithium and its derivatives, potassium chloride and sulfate, industrial chemicals, and other products and services. The company offers specialty plant nutrients, including potassium nitrate, sodium nitrate, sodium potassium nitrate, specialty blends, and other specialty fertilizers. It also provides iodine and its derivatives for use in medical, pharmaceutical, agricultural, and industrial applications comprising x-ray contrast media, polarizing films for LCD and LED, antiseptics, biocides and disinfectants, pharmaceutical synthesis, electronics, pigments, and dye components.
Sociedad Química y Minera de Chile S.A. Fundamentals Summary
|SQM fundamental statistics|
Is SQM overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|SQM income statement (TTM)|
|Cost of Revenue||US$2.24b|
Last Reported Earnings
Mar 31, 2022
Next Earnings Date
Aug 18, 2022
|Earnings per share (EPS)||4.60|
|Net Profit Margin||30.17%|
How did SQM perform over the long term?See historical performance and comparison