ASX lithium shares have delivered stellar gains on the back of the bullish outlook for battery materials. But the sector could have another surprise up its sleeve to entice investors.
As lithium prices continue to break records, Credit Suisse believes some could launch capital management initiatives as the next catalyst for their share prices.
Such a move could provide ASX lithium shares with another tailwind after their strong performances. The Allkem Ltd (ASX: AKE) share price, Pilbara Minerals Ltd (ASX: PLS) share price and Global Lithium Resources Ltd (ASX: GL1) share price are just some examples of miners that have rocketed over the past several weeks.
Price guidance fires up ASX lithium shares
Allkem's latest announcement on lithium carbonate and spodumene concentrate pricing is adding to the bullish outlook for the sector.
The company expects the price for lithium carbonate to reach around US$35,000 per tonne free on board in the June quarter. It adds that its spodumene is set to reach approximately US$5,000 per tonne in the same period.
The price for guidance for lithium carbonate is 26% ahead of Credit Suisse's expectations. The broker was also expecting spodumene prices of around US$4,000 a tonne.
Earnings upgrades powering the sector
"The pricing backdrop continues to outpace CS/consensus anticipation," said the broker. "We have increased price forecasts for CY22/23 to better reflect the market dynamics."
As a result of the upgrade, Credit Suisse's 12-month price target for the Allkem share price jumps by 60 cents a share to $15.30.
Its target for the Pilbara share price increases by a more impressive 70 cents a share to $3.90.
Capital returns could recharge ASX lithium shares
But the good times for ASX lithium shares may not stop there. The way lithium prices are going, one shouldn't be surprised if we see further valuation upgrades if the commodity keeps running higher.
What's more, the amount of cash these miners will be generating could allow them to undertake capital management initiatives. And Allkem could be the first out of the blocks.
"We see scope for dividends or buybacks to be announced within the next year, perhaps as early as the AKE Strategy Day next week," said Credit Suisse.
"Forecast ~19% [free cash flow] for AKE, and net cash position of ~US$1.1bn by June FY23 (even after growth capex) indicate ample room for cash returns to shareholders to begin, we think."
The broker is recommending both the Allkem share price and Pilbara Minerals share price as "outperform".
