August 16th, 2021 | 12:41 CEST
Alcoa, FYI Resources, Varta, Nordex - Ready for takeoff in the high-tech sector?
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
Alcoa - The aluminum giant from Pittsburgh is growing
Pittsburgh, founded in 1758 in the southwestern part of the US state of Pennsylvania, is located in one of the oldest industrial regions of the USA. It is the largest city in the Appalachian economic region and the second-largest city in Pennsylvania after Philadelphia. The chimneys have been smoking here for a good 200 years. Due to its favorable location on the rivers and the nearby ore and coal deposits, the city grew in the 19th century to become the most important location of the US steel industry, which shaped the city well into the 20th century.
In 1888, Charles Martin Hall founded the Pittsburgh Reduction Company. The globally active Company was then given the name Aluminum Company of America (ALCOA) in 1907 to reflect its advancing internationalization. Following the split in 2015, the former bauxite, alumina and aluminum production operations now trade under the old name ALCOA.
In July 2021, Alcoa was the biggest gainer in the US basic materials sector of the S&P, up 18%. The Company now released its Q2 results, with both earnings and revenue beating analysts' estimates. Alcoa continues to expect a strong 2021 based on double-digit growth in aluminum demand across all end markets. In early August, Alcoa was added to Goldman Sachs' Conviction Buy List with a price target of USD 51. The stock currently stands at USD 45 and trades at a P/E ratio of 9.5, making AA stock one of the cheapest metals companies in the world.
FYI Resources - The joint venture with Alcoa takes shape
FYI Resources is an Australian resource company focused on developing a vertically integrated, high-purity aluminum oxide (HPA) for use in various high-growth technology applications. To this end, FYI has invested many millions of dollars over several years in detailed research and development to perfect its innovative and environmentally friendly purification process for HPA using conventional process technologies.
FYI Resources and Alcoa Australia have been negotiating a joint venture for several months, and the agreed exclusivity agreement has now been extended by a further 30 days. The reason for this is that the contractual finalization work is still taking some time. Overall, however, the protagonists agree on the basic conditions. That makes it highly likely that the two companies will combine their competencies in the high-growth HPA market.
According to negotiators, the short extension is necessary to bring future growth options and risk mitigation measures for the project in line with Alcoa's process expertise. In the end, it is also likely to be about the different steps in financing that will follow the JV. Since a mutually prosperous future is at stake, many different cases need to be discussed in advance and settled upfront to avoid later disputes.
FYI shares are one of the best performers on the Australian stock market. Since the deal with Alcoa came within reach, the share price has been consistently moving upward. Last week, it reached a new high of AUD 0.835, compared with AUD 0.40 in March. The share is also being traded extremely actively in Germany. Until the deal is finalized, the chart should continue to move upwards.
Varta - Back to reality
A high-tech answer for Australian raw material suppliers is certainly Varta AG. Here, there was a correction with an announcement at the weekend. The usual fluctuation range of the Varta share doubled last week because the half-year figures all in all went down by almost 20%. At the beginning of the week, the price was still at EUR 165, then the note of the battery manufacturer sank with high turnover to EUR 135.
With sales of just under EUR 398 million, growth was not as strong as expected. The reason for this was intensified research, which caused the usual momentum of recent years to flatten out somewhat. The recent margin development was simply insufficient for the substantial share price increases of the recent past. Varta achieved an operating margin of 28.2% on an adjusted basis, less than experts had thought. Thanks to a stronger second half of the year, the Company continues to expect an EBITDA margin of around 30% for the year as a whole; more was also expected here.
In the overall picture, the market should also learn at Varta that no immediate adjustment of sales prices can be made when raw material prices rise. The development of the automotive battery division must be closely monitored, as the next positive push for the figures lurks here. The price should, therefore, initially be trapped in the band EUR 120 to EUR 150. A stop at EUR 119 would be advisable for investors to hedge the significant gains since March 2020.
Nordex - No turnaround yet for the wind turbine manufacturer
Another brief look at another high-tech producer, Nordex AG. Here, what has already been said applies: the operating margin is falling due to higher prices for intermediate products. We recently advised caution at EUR 21 and EUR 19.
Consequently, Nordex's half-year figures also met with little positive response, with the share price falling to EUR 15.85 in a sharp sell-off. According to the wind power group, sales rose by 32% to EUR 2.7 billion. EBITDA even jumped from minus EUR 70.8 million to plus EUR 68.4 million year-on-year. An excellent turnaround; however, a net loss of EUR 63.7 million remained in the books.
However, the recently lowered full-year forecast for sales and EBITDA was confirmed. However, as the order backlog tends to decline, investors remain cautious. The next chart support is now at EUR 15.30. If it does not hold here, the EUR 12 mark will be called up on the chart. Continue to wait and see!
Two trends significantly influence the high-tech sector. On the one hand, the increased purchase prices for raw materials and preliminary products are a burden. On the other hand, climate protection leads to rising costs. Both trends have manifested themselves and are putting a sustained strain on the margins of high-tech groups. That makes an investment in this sector particularly susceptible to fluctuations, with sometimes severe setbacks if margin targets are missed. However, price premiums usually have a positive effect on commodity stocks. Alcoa and FYI are, therefore, rightly trading at multi-year highs.
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