• Goldman Sachs upgrades Core Lithium from Sell to Neutral
  • Ord Minnett also upgraded target price on Big River Industries


Goldman Sachs upgrades Core Lithium

Goldman Sachs has upgraded Core Lithium (ASX:CXO) from a Sell to a Neutral, with a 12-month price target of 44c (vs current price of 40c at the time of writing).

Since Goldman initiated on CXO with a Sell rating on 7 Dec 2022, the CXO share price has fallen by 69%.

Over the same period, spodumene/carbonate/hydroxide prices have also been down by -46%/-62%/-63% respectively.

Additionally, underground mining costs have risen around 35% since 2021, which is another headwind for the company’s BP33 recovery and improvement works.

CXO also noted recently that on current spot prices (spodumene of around US$3,350/t), in FY25 and FY26, it expects that realised spodumene pricing from offtake contracts would be ~10% below benchmark.

However, Goldman said  a few important points are worth noting right now for the lithium producer.

Firstly, CXO now has its production risks more priced in at 1.1x NAV, which is comparable to its peers of between 1.1 to 1.2x NAV.

Secondly, around 30% of CXO’s market cap is in the form of cash, potentially partially mitigating exposure to falling lithium prices.

And thirdly, Goldman said that CXO’s offtake partners, Sichuan Yahua and Ganfeng (also CXO equity holders), continue to demonstrate confidence in the company and the Finniss project through providing support during the start-up of the project.

Following the recent cap raise, CXO is set to invest around $20-25m on de-bottlenecking and recovery improvement work at Finniss, $45-50m on early works at BP33, and $35-40m for exploration and study expenditure to better understand key growth projects.

“Though further exploration is underway, and while potential resource expansion could be promising, we see limited near-term upside, where new developments are unlikely to come online in time to benefit from the current pricing environment,” said Goldman.

Goldman added that key risks for Core Lithium include: exploration and resource updates at Finniss, cost inflation/operating risk, lithium prices and downstream/tolling volumes.


Big River gets higher price target

Ord Minnett meanwhile has a Buy recommendation on Big River Industries (ASX:BRI), and raised its target price from $2.77  to $2.79 (vs current market of $2.56 at the time of writing).

The broker said the price target lift was due to Big River’s recent outlook announcement, which was a positive surprise vs expectations.

In its trading update last week, Big River stated that its outlook “…remains positive given our end market diversity, supported by an expectation of the current housing backlog extending in CY24 and a strong commercial pipeline”.

Big River manufactures veneer, plywood and formply, as well as distributing building supplies.

Current housing approvals are experiencing a sharp reversal following the RBA’s most aggressive tightening cycle since 1989, but the medium-to-longer term outlook continues to strengthen, driven by a chronic under-build in housing, a surge in immigration and growth in the nascent Build-to-Rent (‘BTR’) sector.

“Whilst macro economic headwinds remain in the short-term, we believe this is already reflected in BRI’s current valuation discount relative to peers (~40% based on FY24e EV/EBITDA),” said Ord Minnett.

“Longer-term, we believe BRI retains significant organic and inorganic opportunities, a strong balance sheet position and a sustainable 6%+ fully franked dividend yield. Thus, we maintain our Buy rating. “

Ord Minnett however noted that it has made minor revisions to its previous forecasts.

“We raise our FY24-FY26 revenue estimates by an average of 1.1%, reflecting more resilient end-market commentary, particularly within detached housing and commercial construction.

“Similarly, we lower our FY24-FY26 EBITDA by an average of -0.6%. These estimates incorporate modestly higher segment earnings, partially offset by higher assumed corporate costs. “


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