September 22nd, 2021 | 10:28 CEST
BP, Saturn Oil + Gas, Gazprom: Where growth meets low valuations
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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
BP dares the green turn
One oil multinational that is already investing heavily in renewable energy is BP. In addition to Scotland, the Company is also trying to gain a foothold as a wind farm operator off the coast of Norway. At the same time, BP continues to produce oil and gas. Specifically, it is working in Angola and the Gulf of Mexico. However, BP earns most of its money in the refining and distribution of fossil fuels. But the Company's revenue figures show that it needs to change something. Between 2015 and 2020, sales fell by an average of about 4%. Cash flow fell by up to 8.7% in the same period. The figures show: BP's stock is not a growth story.
On the stock market, however, BP is helped by solid oil prices. Although the recent China uncertainty also infected the oil price, the trend is positive on a one-year view - BP's share price went up by around 23%. Beyond the GBP 330 mark, an even stronger recovery is possible in the long term. However, the fact that BP has become the focus of many environmentalists and now has a bad image speaks against the share. Although BP is working on better ESG ratings, this is an arduous task for a large corporation.
Saturn Oil & Gas: Organic growth and a P/E ratio just above 1
Saturn Oil & Gas, on the other hand, is an entirely different story. At the Canadian oil producer, both ESG key data and growth are right. The Canadians have far-reaching plans to restore their production sites and plant trees, among other things. Saturn Oil & Gas is also committed to gender equality and specifically invites women for internships to make the energy industry in Canada more female. Beyond these soft factors, Saturn Oil & Gas shines with impressive numbers: Thanks to the Oxbow oil field's acquisition on outstandingly favorable terms by industry standards, the Company has increased its production by 2,000% this year. Just yesterday, the Company announced that an independent appraiser valued the reserves on Oxbow at CAD 435.7 million using standard valuation methods - that is, CAD 0.87 per share. As of now, net operating income is expected to be around CAD 70 million annually. Compared to the current valuation, the share shines with a price-earnings ratio of just over 1.
The acquisition of the Oxbow property was primarily financed by Saturn through a loan from private lenders. In the past, family offices were under discussion. At the same time, Saturn succeeded in securing the existing production to repay the loan within two years, irrespective of the further development of oil prices. For months now, Saturn has been generating a daily free cash flow of around CAD 265,000 - after hedging expenses. The Company is already investing these funds in organic growth. It is confident that it will maintain high output from the new Oxbow property while expanding its involvement in the existing Viking area, where Saturn has already been very successful in the past. The stock has come down a bit in the wake of the China concerns. However, valuation, growth prospects and ESG profile suggest Saturn can be one of the best energy stocks in the coming years.
Gazprom: ESG still lacking
Gazprom is less focused on sustainability. Nevertheless, the share is currently in demand. The Nord Stream 2 pipeline to Europe is on its way, and business with China is also promising. Gazprom has enormous reserves, and the potential for cost-effective production is considerable. The largest business segment is natural gas, accounting for 55% of sales; oil plays only a minor role at 7.7%. In recent quarters, Gazprom has been on a growth path, which has also benefited the stock. However, there are weaknesses in the ESG profile.
While Gazprom can easily outperform BP in the duel of the oil multinationals, the comparison with Saturn Oil & Gas is quite different. Although the latter is a relatively small company, the risks seem low given the existing oil price hedge. Moreover, since Saturn generates free cash flow, it can once again focus on organic growth. The Company, rooted in Saskatchewan, Canada, knows the industry well and has already been successful in this area.
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