10. September 2020 | 07:37 CET
Allianz, Bayer, Newlox - Opportunities and risks go hand in hand
If the shares of the U.S. company Apple fluctuate, then the impact on market capitalization may well amount to the entire equivalent value of the fourth-largest DAX company, Allianz. Apple's market value is around EUR 1,640 billion, and against this, Germany's insurance giant, at around EUR 75 billion, looks like a delicate little plant. There are various reasons for this, which lie beyond the objective or fundamental valuation. For one thing, more German investors buy the shares of U.S. companies than the other way around, and moreover, premium smartphones and tablets are simply more exciting for the younger generation of investors than insurance policies. From this perspective, healthy diversification makes perfect sense.
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ISIN: CA65151R1001 , DE0008404005 , DE000BAY0017
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Gold through environmental remediation
Central banks around the world print money and drive the price of gold to historical levels. While the reserves of the largest gold producers have fallen by 34% since 2012, there are companies that specialize in extracting gold from mining tailings.
Put simply, Newlox Gold Ventures produces gold through environmental remediation. The company is focused on recovering precious metal residues from tailings piles of historical workings in Latin America. These gold-bearing tailings usually date from a time when mining was not yet efficient and rather pragmatic. The company's new environmentally friendly process has already secured access to gold projects in Costa Rica.
Newlox Gold claims that it is well positioned to rapidly scaling up gold production. The revenues are expected to be reinvested in growth, with an initial focus on expansion in other regions of Latin America. Newlox Gold's approach eliminates the conventional, time- and capital-intensive process of permitting, exploration and subsequent mining of gold. Experts now expect that discoveries in 2020 will not go into production for up to 30 years. Newlox Gold does not have this time problem and therefore the scalable business model with the current valuation of around EUR 10 million is an interesting alternative.
Moral and contractual obligations
The German insurance industry is in a tight spot. In recent years, the partners for planning security have concluded various products with their corporate customers, which are intended to provide financial protection in the event of a company closure. Due to the Corona restrictions, which have been in force nationwide since March 2020, a large number of companies, mainly in the catering and tourism industry, have ceased operations.
From the customer's point of view, the insured event has occurred and accordingly, claims will be asserted against the insurance companies. Originally, the insurers assumed that the risk would be manageable, but due to the dimension of the ordered impairments, a damage sum of several billion EUR is rolling towards the companies. Currently, the insurers are still trying to avoid the costs and are trying to find out-of-court solutions with the affected parties. However, the judges at the Regional Court in Munich have already expressed in one case that it does not matter to the affected party how many other policyholders are still affected.
Exciting times are approaching for the insurance giants. Allianz has achieved an operating profit of EUR 4.9 billion in the first half of 2020 and will certainly survive this affair. UBS analysts estimate that the insurance industry could face losses of up to USD 22 billion in connection with business closure insurance - the USA is not included in this estimate.
A 100% chance?
The analysts of the major Swiss bank UBS have a high opinion of the German pharmaceutical and agricultural group. According to the experts' assessment, the share has a potential of EUR 110.00. Up-to-date with approximately EUR 55.00 the shares change their owners and in this context the estimate with doubling potential sounds tempting.
The earnings per share in the first six months of the current fiscal year, which exceeded expectations, were probably the decisive factor in this assessment. For the year as a whole, earnings per share of EUR 6.27 are expected, which according to estimates will rise to EUR 8.34 by 2024. Until confidence in the prospects and euphoria for the company is established, the takeover of the U.S. company Monsanto must also be legally digested. There is no other way to explain the current shyness for Bayer stock.