Almonty Industries, Volkswagen, Rheinmetall: Which share will take off in 2024?

Almonty Industries - Significant potential

Almonty Industries already produces tungsten at its Panasqueira mine in Portugal. The mine is set to expand in the first quarter of 2024 and offers enormous potential with low risk. According to the completed feasibility study, this will increase throughput and provide access to high-quality material, nearly doubling tungsten production. The goal is to produce 124,000 metric tonnes of tungsten oxide (WO3) annually, extending the mine's lifespan by more than 20 years. Additionally, Panasqueira is rich in tin. The possibility of extracting other metals, such as tin and copper, is currently being investigated.

Even more interesting for the Company is the Sangdong Mine in Korea, which is currently being developed. The project has been fully approved, construction is already well advanced, and financing of USD 75.1 million is being provided by KfW. In November, the next loan tranche amounting to USD 13.7 million was disbursed. The project is one of the largest tungsten deposits outside China. The lifespan of the mine is over 90 years, during which an annual EBITDA of CAD 72 million is expected. There is already an offtake agreement with Plansee GTP with a price guarantee of USD 235 per MTU. In addition, there is considerable potential from the underlying molybdenum deposit, which is also located on the property.

The Sangdong mine is expected to provide up to 15% of the global tungsten supply once the mine has reached full capacity. Construction of the mine is due to be completed by the end of 2024. In addition to the two projects, there are two more in Spain. The current focus is on Portugal and South Korea. This will enable the Company to supply the battery industry, the semiconductor market and the defense industry, thus ensuring greater independence from China. The share has come under pressure due to slight delays in the construction of the Sangdong mine and fell from its high for 2023 of CAD 0.88 to CAD 0.42. The share is now trading at CAD 0.56 and is trying to break out of the sideways phase to the upside.

Volkswagen - Fundamentally favorable

The automotive industry could also boost demand for tungsten. Tungsten is becoming more important in the production of electric vehicle batteries, as it can improve their high energy density. Niobium tungsten oxide is the primary material used in batteries, which shortens charging times and increases power density. Volkswagen also wants to manufacture its own batteries in the future and has planned three gigafactories in Salzgitter, Valencia and St. Thomas. This will give the Company a production capacity of up to 200 gigawatt hours. At the end of last year, VW decided against a fourth site in the Czech Republic.

The Group is currently in a transformation phase. The switch from conventional vehicles to electromobility requires adaptation. To position itself more efficiently for the future, the Company needs to streamline. This includes reducing jobs and downsizing the model range, as well as joint platform approaches to benefit from scaling effects. Around 20% of costs are to be saved at the Wolfsburg site. Development is to be accelerated, and ultimately, around EUR 10 billion is to be saved through these various measures.

This should increase the return on sales from 3.4% to 6.5%. At least the allegations that forced laborers were employed in a joint venture in China have been refuted. From a fundamental point of view, the share is a clear buy with a price/earnings ratio of around 4. The question is rather where the growth will come from, as the market for e-cars is highly competitive, and VW cannot give significant price discounts with this return on sales. The question also remains as to whether the dividend yield of over 7% can be maintained at the current share price of EUR 111.10.

Rheinmetall - Full order books

Since the outbreak of the war in Ukraine, Rheinmetall has become the focus of investors. The share is running from one all-time high to the next. The EUR 300 mark was recently broken in Xetra trading. This is also driven by news such as a new record 2023 for approved arms exports by the German government. The Düsseldorf-based company will also have benefited from this. The Company itself says that it is growing dynamically and organically. To this end, the Group is internationally positioned and is considered a technology leader in some areas. Capacities are currently being expanded in order to increase turnover. The aim is to increase cash flow and profitability.

Operationally, the Company is making good progress. Even in December, when things were quiet in many sectors, the Company announced one deal after another. It started with an order worth EUR 140 million from Ukraine for artillery ammunition. That was followed by a double-digit million order for electrical high-voltage coolant pumps. A state-of-the-art air defense system was ordered from Austria for EUR 532 million. The Hungarians have placed a development order for the Skyranger variant of the Lynx tank. Exhaust flaps for a double-digit million euro amount came from a customer in the commercial vehicle sector, and Romania wants to modernize its air defense system for EUR 328 million.

The order backlog currently stands at EUR 26.6 billion. In the financial year, turnover will be around EUR 6.4 billion. The operating margin has risen to 11.8%. The Company will, therefore, be working at full capacity in the coming years. The capacity expansion in Hungary has been completed, and the first Lynx tank has rolled off the production line. Given the geopolitical tensions, Rheinmetall will likely be working at full capacity for some time to come. The dividend is expected to be EUR 4.30. A share in the Düsseldorf-based company currently costs EUR 296.80.

Which share will take off this year? Almonty Industries could be due for a revaluation by the end of the year once the Sangdong mine has been developed and the expansion of Panasqueira has been completed. Volkswagen is likely to improve its figures next year due to the cost-cutting program. Fundamentally the share has catch-up potential. Rheinmetall is thriving but has already performed very well. Big jumps might be somewhat challenging.