Lifestyle Communities’ shares have fallen 34.52% in the year-to-date, yet investment bankers Goldman Sachs see the weakness in the price as a buying opportunity.
Goldman Sachs’ analysts in a recent note have a conviction buy rating and $24.65 price target on the company’s shares.
Based on the current share price of $13.70, this implies potential upside of 80% for investors over the next 12 months.
In February Lifestyle Communities, co-founded by CEO James Kelly (pictured), announced it had achieved a net profit after tax of $27.5 million for the first half of the 2022 financial year, compared to $14.1 million in the same period last year.
In a trading update last month, the company stated it expects to deliver between 390 and 405 new home settlements and between 140 and 150 resale settlements attracting a deferred management fee.
Goldman Sachs outlined three reasons it was bullish on Lifestyle Communities.
“In the near term, we see potential modest house price declines offset by LIC’s favourable pipeline and inventory position, coupled with a strong value proposition for incoming home owners, with the cost of an LIC home reaching <70% of the median house price in some areas (vs. ~c.80% typically), thus providing pricing support,” the note stated.
“Despite a rising rate environment (our GS Macro team forecasts peak-to-trough house price declines of 10% and a year-end policy rate of 2.60%) we continue to see valuation support for lower or maintained cap rates across the Australian land-lease sector, and would expect to see spreads decline.
“LIC generates low-risk, annuity rental income. RLLCs (Residential Land Lease Communities) are becoming an institutional-grade property sub-sector, with increasing demand, particularly from offshore institutions/pension funds/corporates.”
The three other land leases businesses on the ASX have had a very contrasting year-to-date. Ingenia Communities’ value has dropped 36.54% whereas Aspen Group and Eureka Group has suffered a drop of 8.91% and 12.68% respectively.
