January 19th, 2022 | 13:45 CET
BYD, Almonty Industries, Varta - E-mobility needs critical metals!
Table of contents:
"[...] 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
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
BYD - The major attack in the automotive battery sector
Many critical metals are majority-owned by China, so currently, the central government in Beijing is deciding on possible allocations to foreign countries. Admittedly, the Middle Kingdom wants to stay in business with the West, so long-term contracts exist. Nevertheless, the domestic industry is given preferential treatment; we in the West can only hope for political stability and incremental improvements.
In addition to automotive production, the Chinese technology and automotive group BYD also operates a large corporate division for high-performance batteries. Because markets are increasingly demanding these units, BYD and its cooperation partner FAW are planning a production facility for electric car batteries with an annual capacity of an astonishing 45 GWh in northeast China.
The fields of operation of the joint venture called "FAW-Fudi" are the development, production and sales of battery systems for vehicles and stationary applications and battery recycling. The factory is reported to be built in three phases and, in its final expansion, will supply blade batteries for more than one million vehicles annually. It is not yet known whether FAW and BYD themselves will be the main customers of the joint plant or whether third-party customers will also be supplied. In any case, BYD is making itself less dependent on third-party supplies with this expansion step while at the same time expanding its battery expertise accordingly.
After reaching a new high of around EUR 36.50, the BYD share has recently corrected somewhat; we had already pointed out the technical weakness a few weeks ago. Looking at the chart, the correction could continue to the range of EUR 22-25. With the current level of EUR 29.30, a tight stop at EUR 27.80 is recommended to avoid the worst.
Almonty Industries - Very well positioned with tungsten and molybdenum
In addition to nickel, cobalt, graphite and lithium, the name tungsten appears again and again in current battery research. The metal with the chemical symbol W, which belongs to the transition metals, was often used for filaments in lamps because of its high melting and boiling point. These have now fallen into the background because of LED technology, but not the heat-resistant tungsten. Because of its unique specificity, the rare metal is currently being traded as a substitute for toxic cobalt. So far, it has been used in its form as tungsten carbide to produce carbide tools and construction materials. It could increasingly be on the procurement list of Western industrial giants as a strategic metal in the future.
The EU also ranked tungsten at the top of its list of critical raw materials. In the case of tungsten, the dilemma of scarce raw materials plays right into the hands of Canadian explorer and producer Almonty Industries, which has long operated properties in Europe and Asia. The Company's good diversification could soon pay off. In addition to Spain and Portugal, it also owns mining rights to tungsten and molybdenum in South Korea, in the immediate vicinity of Samsung, Kia and Hyundai. As a result, all sales channels to Asia's most important industrial regions are open to the Company.
With a loan from KfW, mine operations are expected to ramp up from the end of 2022, with Almonty adding to the world's 30% of tungsten supply outside China and reducing Western dependencies. The stock has been in the CAD 0.95 - 1.05 corridor for some time and has a current market capitalization of about CAD 187 million. The major shareholder with about 12.2% is Deutsche Rohstoff AG. If technology becomes even more tungsten-based in the future, Almonty will move very quickly.
Varta - The support zone is in danger
Varta is another promising player in the battery sector, and we have often focused on the share. The value entered somewhat heavier waters at the end of the year due to restrained corporate forecasts. After rising to EUR 135 in October, the share fell back to below EUR 117. The trading range of EUR 105 to 135, which we have often formulated, is currently under severe threat; yesterday, the share price fell to EUR 103.70.
The stock market urgently needs good news from Ellwangen for the price level reached, but according to the company calendar, the annual financial statements for 2021 will not be published until the end of March. Fresh impetus is therefore not to be expected for the time being. In November, the battery manufacturer already had to lower its annual forecast. Further details on the entry into the e-mobility business with the innovative V4Drive cell have not been promised by the Executive Board until spring. This time is likely too long for the beleaguered trend.
However, with the break of the support at EUR 105, market participants may also expect a disappointment in the annual figures. Sales are expected to land at around EUR 909 million, with the battery specialist expected to achieve an EBIT margin of around 20%. At estimated earnings per share of EUR 3.08, the P/E ratio would still be in the 36 range. At the current level, it is getting tight for the Varta bulls because the next stronger support is waiting again in the area of the lows from June 2020 at around EUR 90. Currently, one probably misses nothing, so continue to stay on the sidelines.
Today's technology sectors are dependent on the availability of essential metals. Countries can intervene politically with supply agreements, but the ultimate regulation takes place via the price. Energy and climate change intensifies the hardships and creates considerable pressure over the timeline. Battery manufacturers like BYD and Varta are negatively exposed to this scenario. A medium-term profiteer could be the producer Almonty Industries.
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.
In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.
For this reason, there is a concrete conflict of interest.
The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.
Apaton Finance GmbH offers editors, agencies and companies the opportunity to publish commentaries, interviews, summaries, news and the like on news.financial. These contents are exclusively for the information of the readers and do not represent any call to action or recommendations, neither explicitly nor implicitly they are to be understood as an assurance of possible price developments. The contents do not replace individual expert investment advice and do not constitute an offer to sell the discussed share(s) or other financial instruments, nor an invitation to buy or sell such.
The content is expressly not a financial analysis, but a journalistic or advertising text. Readers or users who make investment decisions or carry out transactions on the basis of the information provided here do so entirely at their own risk. No contractual relationship is established between Apaton Finance GmbH and its readers or the users of its offers, as our information only refers to the company and not to the investment decision of the reader or user.