25. May 2021 | 11:35 CET
Bayer, Saturn Oil + Gas, Deutsche Lufthansa - All the ingredients for a price fireworks display!
Information moves prices. Sometimes up, sometimes down, and sometimes information seems to "bounce off" - ignored or misinterpreted by market participants. It is easier said than done to correctly classify the information in relation to the long-term perspective of a company. Thus, as seen last week with Bayer and Deutsche Lufthansa, a short-term price dampener is a good opportunity to enter the market. But also, information that is complex in detail and must first be "understood", offers the chance to make a real bargain. Canadian oil and gas producer Saturn is a case in point. The Company is moving into new dimensions with an acquisition, and according to the latest analyst report, the stock has the potential to triple in value. Where will you buy?
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ISIN: DE000BAY0017 , CA80412L1076 , DE0008232125
"[...] 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 AG - 2:1
The German life science group divides its business activities into consumer health, pharmaceuticals, and Crop Science. In the past fiscal year, Bayer generated sales of EUR 41.4 billion with around 100,000 employees. Although the pharmaceuticals business predominates in the Group, the agrochemicals activities had a negative impact on the news flow last week.
Bayer scored a massive own goal with its 2018 acquisition of US competitor Monsanto. Its aftermath continues to this day. Monsanto's bestseller was Roundup, a weedkiller containing glyphosate that is suspected of being carcinogenic. It led to a huge wave of lawsuits. The Company was brought back down to earth last week when it felt it was on the home stretch to conclude part of the billion-euro settlement it had sought in the US legal dispute. An important judge demanded more specifics and improvements on several points. A Bayer spokesman stressed that, together with the plaintiffs' attorneys, the court's concerns would be addressed and went on to say that "we are confident that we will reach a revised settlement that is fair and reasonable. We intend to file a new motion within the next month." The renewed hang-up weighed on the share price.
Nevertheless, the positive news outweighed the negative last week. Bayer can hope for early approval of the heart drug Verquvo in the EU. The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) issued a positive recommendation for the drug last Friday. The active ingredient vericiguat is used to treat certain symptomatic chronic heart failure in adults. The Company said it expects the final decision from the European Commission in the coming months. However, the drug has already been approved in the United States since January. The drug is a joint development of Bayer and the US pharmaceutical Company Merck & Co. Merck & Co. holds the marketing rights for the United States, Bayer for the rest of the world. Regulatory filings are also currently underway in other countries, including Japan and China.
Another reason Bayer shareholders rejoice came last week from southern Germany: CureVac expects its Corona vaccine to be approved soon. Bayer had entered into an extensive collaboration with the Tübingen-based biotech start-up in January to market its COVID-19 vaccine. Plans are already underway to expand production, CureVac spokeswoman Sarah Fakih told Augsburger Allgemeine over the weekend. "We hope for approval in the second quarter," Fakih said. So - 2:1 for the team "Pharma".
At around EUR 56, the share price is still EUR 20 away from the 2020 summer price. Given the excellent pharma prospects of the Group and the progressive workout of the glyphosate litigation in the share, it is a clear buy.
SATURN OIL + GAS INC - Mega deal! According to analysts, the stock is a triple!
The recently announced acquisition of the Oxbow property will catapult the emerging Canadian oil and gas producer to new heights. Saturn has entered into an agreement to purchase the Oxbow assets for approximately CAD 93 million. Oxbow's assets are located in southeastern Saskatchewan and currently produce nearly 6,700 BOE per day.
Other important aspects are added: the Oxbow property has extensive infrastructure and facilities with direct pipeline connections to the global distribution network. These plus points strengthen the economics of the transaction. Likewise, the so-called depletion rates, i.e., the declining extraction rates or yields typical for oil production, are very low here. In addition, the new asset has an advantageous production share of gas, which is very low. Saturn will reach a production level of around 7,500 BOE per day upon completion. According to the Company, it will be possible to maintain the production level for at least 24 to 36 months after the transaction.
The analysts at GBC have taken a closer look at the deal and point to the following key figures, which impressively underline the high profitability of the project. Already in the current fiscal year, sales are expected to jump to around CAD 146 million, enabling an EBIT margin of 53%. The Company hedges a large part of its production on the forward market. Currently, Saturn is valued at around CAD 42 million at a share price of CAD 0.18. The purchase price of the Oxbow asset is to be settled in shares and loans. Even if this means a dilution with the increase in the number of shares from the current 234 million by around 300 million shares, the "net effect" for shareholders is positive.
The analysts of GBC formulate a price target of CAD 0.46, which you calculate based on a DCF model. If one also considers the sheer size of the land package and the replacement value, then the price target is well supported. The project covers 11,484 sq km of land. Saturn is acquiring over 1,000 producing wells, 60 major facilities, 2,500 kilometers of connected pipelines and 244 wells ready to drill. From undeveloped land to multiple well sites and pipelines, the Canadians are acquiring total assets with a replacement value of approximately CAD 1 billion!
DEUTSCHE LUFTHANSA AG - Major shareholder sells at a considerable discount!
No, it was neither geopolitical tensions nor the oil price that caused the share to plummet last week, but the sale of a major shareholder. A significant share placement by the Thiele family had weighed on the stock last Friday. The heirs of billionaire Heinz Hermann Thiele (owner of brake specialist Knorr-Bremse), who died in February 2021, sold 33 million share certificates at a considerable discount.
Thiele had joined Lufthansa last year. As the Bloomberg news agency reported late Thursday evening, citing documents at its disposal, the shares were sold via the investment bank Morgan Stanley for EUR 9.80, almost 10% below the Xetra closing price! What happens to the remaining 4.5% share of the family is unclear. In addition, the market expects a new capital injection for the crane soon. Traders are waiting for the next mini-correction!