June 3rd, 2022 | 10:49 CEST
Bayer, Globex Mining, RWE - Diversified shares perform strongly in tough times
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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
Bayer - Strong first quarter
Bayer's product portfolio consists of three divisions. The Pharmaceuticals division consists primarily of prescription drugs, and non-prescription drugs are assigned to the Consumer Health division. Crop Science is the third pillar, focusing on high-quality seeds and innovative crop protection solutions. The last area, in particular, weighed heavily on the Group due to the lawsuits concerning glyphosate. Despite the major crisis caused by the Monsanto takeover, the share price did not collapse because the Pharmaceuticals division could absorb at least some of the problems.
Now that fertilizers are in great demand again, this division is also contributing significantly more to Group sales. This was clearly reflected in the first quarterly figures on May 10. Crop Science increased its earnings by 50% and achieved an EBITDA of around EUR 3.7 billion. Overall, sales rose by 14.3% to EUR 14.6 billion, and EBITDA was EUR 5.3 billion, an increase of 27.5%. The figures show that the recently much-maligned agricultural sector has significantly improved. It was recently announced that the Group intends to substantially increase its sales in India for the public health sector. The goal is to supply 1 million pharmacies in India. At the moment, the Company has a good 0.5 million stores.
Bayer's share price has risen this year, and not just since the good quarterly figures. Since the beginning of the year, the stock has been in demand. It was able to gain over 42% to EUR 67.99 at its peak. The current price is EUR 66.09 per share. Since the quarterly figures, there have been nine buy recommendations with price targets between EUR 70 and EUR 90. Only Credit Suisse recommends holding with a target price of EUR 62. Following the share price increase, the dividend yield is now just over 3%. The good earnings from the agricultural division make the worries about the lawsuits seem smaller at the moment.
Globex Mining - Diversified and sophisticated business model
Since many commodity prices exploded last year, one hears more and more often that commodities are at the beginning of a new supercycle. For the investor, the question is: what is the best thing to invest in? Lithium, gold, uranium, copper, rare earths or rather diamonds? With an investment in Globex Mining, one covers all these areas and many more. The Company has acquired 210 projects at low cost in areas with low political risk over the past decades. Subsequently, the projects are explored and upgraded. After upgrading, the projects are of interest to other companies, which then take over Globex's projects and pay company shares, cash and royalties in return.
Experienced CEO Jack Stoch has thus created a kind of perpetual motion machine. This cycle is so sophisticated that the Company is debt-free, can make acquisitions from its current cash balance of around 20 million Canadian dollars (CAD) and has thus long since ceased to rely on capital increases, which ultimately benefits its shareholders. Currently, the Company receives royalty income from 90 projects and has optioned 7 more. In these options, Globex also receives cash payments or shares. The Company that has received the option must put a predetermined amount into the exploration of the project within a specific time. If this does not happen, the option expires and all rights revert to Globex.
The Company has a unique diversification. On the one hand, it has 210 projects, and on the other, a wide variety of raw materials. The projects are also geographically distributed, namely in Canada, the USA and Germany. At its peak this year, Globex Mining's stock gained over 68% to CAD 1.69. Rising interest rates, Zero-COVID in China and fears of recession pushed the stock down to the current CAD 1.17. If China opens, the nation with the greatest hunger for raw materials will be back on the market, and demand will rise accordingly. That should also lead to an increase in commodity prices, from which Globex should benefit.
RWE - Entering the hydrogen business
RWE remains one of Germany's largest energy suppliers. The Essen-based Group generates and supplies electricity from renewable and conventional sources, primarily in Europe and the United States. The Company operates in five segments: Offshore Wind, Onshore Wind/Solar, Gas, Supply and Trading, and Coal and Nuclear. The Company serves commercial, industrial and business customers. Following the decision to phase out nuclear power, the Group positioned itself more broadly. Renewable energies are becoming increasingly important, including for the production of green hydrogen.
On June 2, the Essen-based company announced the purchase of a Dutch gas-fired power plant from Vattenfall for EUR 500 million. The gas plant is located in the immediate vicinity of RWE's power plant in Eemshaven and has a capacity of 1.4 gigawatts. Since the new power plant is already hydrogen-capable, RWE plans to turn the site into an energy and hydrogen hub. It also plans to acquire the Hollandse Kust West offshore wind farm, which has 600 megawatts of electrolyzer capacity. Neither of these acquisitions is yet in the bag, but they would be an ideal fit for the Essen-based company's 'Growing Green' strategy.
The Group is therefore well-positioned for the post-nuclear era. It has long-term experience in all relevant future technologies and is well-positioned, especially in industrialized countries with high growth potential. Investors are rewarding this, and the share has been on a clear upward trend since July last year. Even the Ukraine crisis was able to stop this only briefly. The share is currently trading at EUR 40.90. That means that the former dividend star is only paying a 2% dividend. Since May, all analysts have regarded the share as a buy with price targets of up to EUR 60.
Diversification is good and helps both the portfolio and the shares if they cover different business areas. In Bayer's case, the pharmaceutical and agricultural sectors support each other even in difficult times. Globex Mining has almost all commodities in its project portfolio and appears undervalued simply because of the number of projects and proven reserves. RWE had to adapt to the changes of necessity. The Essen-based Group has succeeded impressively in doing so.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.
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