BATT - BATT ETF: Now Great Value With A Superb Growth Outlook

July, 15 2023 02:56 AM Amplify Advanced Battery Metals and Materials

2023-07-15 02:56:20 ET

Summary

The BATT ETF invests in companies involved in battery storage solutions, battery metals & materials, and electric vehicles.
Tesla 2023 Shareholder Day forecast we need to increase EV production by 11x/yr and battery production by 29x/yr to reach a fully sustainable renewable energy world.
The BATT ETF valuation looks very attractive on a PE of 14.34 and a yield of 3.71%, especially given the sector's superb growth outlook.
Risks revolve around poor past performance of the BATT ETF, exposure to some Chinese stocks, and management of the fund.
We view the BATT ETF as a strong buy.

Amplify Lithium & Battery Technology ETF ("BATT")

The Amplify Lithium & Battery Technology ETF ( BATT ) ("BATT") is a broad way to play the lithium-ion battery, electric vehicle ("EV"), and EV metals boom. Current valuation looks great and the growth outlook is superb.

The BATT ETF price has moved sideways the past 5 years despite improving fundamentals

As shown on the chart below the BATT ETF has generally moved sideways or slightly down over the past 5 years, despite the EV and battery sector booming. This has mostly been caused by negative sentiment resulting in the BATT ETF's PE ratio falling substantially. We give some more reasons for this in the conclusion.

2018 global plugin electric car sales ended at " over 2 million and market share at 2.1% ". 2023 sales are forecast by Trend Investing to reach 14.35m and 17.5% market share. That's roughly a 7x increase in 5 years, while the BATT ETF has only moved sideways.

BATT ETF 5 year price chart ( source ) - Price = USD 13.99

Yahoo Finance

Note: The chart above excludes the impact of BATT paying distributions each year. You can view BATT's past distributions here .

We did see a similar occurrence with the Tesla ( TSLA ) stock price where it moved sideways for 10 years before surging higher. Sometimes a stock or an ETF forms a base for many years, then like a sprung coil it releases higher as sentiment changes and the underlying fundamentals become better understood and it gets re-rated to a higher PE ratio.

Tesla long term stock price - 10 years of base then surged higher ( source )

Yahoo Finance

A brief summary of the BATT ETF

BATT is a broad way to play the lithium-ion battery, electric vehicle ("EV"), and EV metals boom which is expected this decade and next.

Amplify defines their BATT fund stating :

BATT is a portfolio of companies generating significant revenue from the development, production and use of lithium battery technology, including: 1) battery storage solutions, 2) battery metals & materials, and 3) electric vehicles. BATT seeks investment results that correspond generally to the EQM Lithium & Battery Technology Index.

BATT stock selection methodology ( source )

BATT Fact Sheet

BATT is currently comprised of 103 global companies. The expense ratio is 0.59%pa .

Sector allocation (as of 30 June 2023) is dominated by EVs (24%) and battery technology (battery manufacturers) (20%). There is also considerable EV metals exposure to the miners of lithium (15%), nickel (14%), and cobalt (8%); as well as battery components companies (10%) and energy storage companies (4%).

Country allocation (as of 31 March 2023) of the BATT stocks is China (29%), USA (18%), Australia (16%), South Korea (11%), Japan (6%), Switzerland (5%), Canada (4%) and so on.

Sector and country allocation as of 30 June, 2023 ( source )

BATT Fact sheet

Top ten holdings of the BATT ETF

The top 10 holdings shown below look to be a very good top 10 with exposure to the leading electric car manufacturers, leading battery manufacturers, and some of the leading EV metal miners.

BATT Top ten holdings ( source )

BATT website

Global lithium-ion battery manufacturers by market share in 2022 - CATL leads by far with 37% share ( source )

CNEVPOST

More details here on the BATT ETF at the Amplify BATT website.

Valuation

Valuation looks very attractive on a current PE of 14.34 and dividend yield of 3.71% .

As of July 13, 2023 the fund is trading on a discount of 0.63% NTA discount.

Our view is that the valuation is very attractive given the growth outlook for the EV and energy storage sectors are very strong.

EV and energy stationary storage sales are forecast to surge in the decade or two ahead

Global electric car sales reached 10.522m in 2022 and 13% market share ( source )

EV-Volumes

Global plugin electric car sales forecast to grow exponentially this decade

Mining.com

Bloomberg forecasts rapid growth in global energy stationary storage ("ESS") and a doubling in 2023 ( source ) (Jan. 2023)

BloombergNEF

Solar & wind production needs to increase by 3x/yr, battery production by 29x/yr, BEV production by 11x/yr for a 100% renewable energy world ( source )

Tesla 2023 shareholder meeting

Tesla Master Plan 3 estimates that 240 TWh of energy storage is needed to move to a 100% renewable energy world ( source )

Tesla

Risks

An EV sales slowdown and less demand for batteries and EV battery metals.
Battery metals (nickel, lithium, cobalt) prices falling may negatively impact the sector of the fund invested into EV metal mining stocks.
Excess competition, supply chain risks, technology change.
ETF risks - Amplify management of the fund. The ETF could trade below its net tangible assets ("NTA") value.
Sovereign risk - Generally low for the BATT fund. USA, Australia, South Korea, Canada, Japan is low risk. Moderate risk with China exposure. Also some of the EV metal miners have 'mines' in higher risk countries.
Stock market risks - Market sentiment. Liquidity looks fine. Currency risks - BATT is priced in USD however only 20% of the ETF is in U.S stocks. This can mean that non-USA stocks can under-perform in USD terms when the USD is rising and vice versa.

Conclusion

The BATT ETF stock price has done poorly the past few years due to currency impacts as the USD rose (many stocks are in non-USD currencies), BATT holding some China stocks, the 2022 price falls across the sectors (EVs, battery OEMs & EV metal miners), and the tough equity market conditions including negative fund flows the past 1 year ( minus US$12.33m ). As a result the fund's PE ratio has dropped significantly, especially in the past year (see below).

Meanwhile sales and the growth outlook for EVs, lithium-ion batteries, and EV metals continues to be extremely positive. Tesla 2023 Master Plan and 2023 Shareholder Meeting highlighted the massive forecast increase in demand for lithium-ion batteries (240TWh, or a 29x increase in yearly production needed) and electric cars (11x increase in yearly production needed) to move to a fully sustainable renewable energy world.

BATT's top holdings look spot on with the top two EV manufacturers (Tesla & BYD [HK:1211]( OTCPK:BYDDY ) ( OTCPK:BYDDF )), the top two battery manufacturers (CATL [SHE:300750] & LG Energy Solutions [KRX:373220] (previously LG Chem)), and two top tier EV metals companies (Albemarle ( ALB ) and Glencore [LON:GLEN]( OTCPK:GLNCY ) ( OTC:GLNCF )).

Valuation looks very attractive on a current PE of 14.34 and dividend yield of 3.71% , especially given the tremendous growth outlook for the EV and energy stationary storage ("ESS") related sectors. By comparison in May 2022 the BATT ETF PE ratio was 19.51 and the yield 3.18% .

Risks revolve mostly around the sector performing poorly due to poor EV sales and hence less demand for EVs, batteries and EV metals. Some China companies exposure adds risk. Please read the risks section.

We view BATT as a strong buy, suitable for a 5 year plus time frame, especially if you are positive on the outlook for EV and ESS growth this decade.

As usual all comments are welcome.

For further details see:

BATT ETF: Now Great Value With A Superb Growth Outlook

Company Name:	Amplify Advanced Battery Metals and Materials
Stock Symbol:	BATT
Market:	NYSE

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