June 23rd, 2021 | 15:15 CEST
BYD, Plug Power, Saturn Oil & Gas: Take a close look at the energy transition!
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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
BYD: Why ESG risks lie dormant here, too
Even BYD's fancy vehicles do not run on air and love - the batteries of the electric cars have to be charged. If coal is burned for this purpose, an electric vehicle, in combination with its production, is likely to have a worse carbon footprint than a modern diesel. On the other hand, electric driving is somewhat cleaner if the energy comes from gas. Renewable energy sources are ideal, but these only took a share of around 2% in 2018. It is also essential to consider the production of solar cells and wind turbines, including all supply chains - only if regenerative energy is produced sustainably all around does it make sense.
As the trend is increasingly moving towards taking production chains into account and quantifying and reporting environmental impacts, the discussion around electric cars and their sustainable use is likely to really take off. Manufacturers like BYD are therefore not immune to the climate debate. However, BYD is well-positioned: The e-car company produces its batteries and semiconductors, giving it some advantages over the competition. However, many of the raw materials come from China - and are sometimes extracted there under controversial conditions. So while Western carmakers are building their own supply chains around batteries and paying more attention to their ESG profile, BYD could be exposed to risks in this context.
Plug Power: Why the numbers do not matter in detail
With hydrogen, too, it is crucial that it is "green" hydrogen. What is meant here is hydrogen that has been produced with the help of renewable energy. In this context, various engineers have made progress in recent years. There is also a promising solution provider from Germany with Enapter. The US fuel cell manufacturer Plug Power also came under the wheels in the course of the slump in hydrogen stocks. Above all, the market complained about the thin sales and weak results paired with high valuations.
Plug Power has recently seen the latter come back. Yesterday, the Company published quarterly figures. The Company had already announced a significant increase in sales and earnings compared to the same quarter last year in advance. However, around USD 70 million in sales combined with a market capitalization of EUR 14.3 billion are still somewhat meager. It does not matter whether the actual figures are slightly higher than expected or not. The share has recovered recently but is still in a downward trend. The stock is not out of the woods and is still expensive.
Saturn Oil & Gas: Value, value, value
The complete opposite of Plug Power is Saturn Oil & Gas. The Canadian oil producer with an ESG profile is valued at only EUR 25 million on the stock market. However, the Company recently made a spectacular acquisition: for CAD 93 million, it purchased an oil field that will provide the Company with substantial growth rates in the future. As a result, daily oil production is expected to increase from 350 barrels per day to 7,200 barrels per day. The analysts at GBC Investment Research used the transaction as an opportunity to set a price target of CAD 0.46 for the share - the stock is currently trading at CAD 0.16.
Since Saturn succeeded in financing the acquisition largely with borrowed capital and the credit line is to be repaid within two years, the current situation of the share and the Company can only be seen as an opportunity. Saturn itself emphasizes that it has already hedged the production of the new oil field against price fluctuations. It is therefore highly confident that the loan can be serviced. According to analysts at GBC, in 2021, Saturn should make sales of CAD 146 million and shine with an EBIT margin of 53.21%. The cash flow generated could also allow Saturn to grow organically - in the past, the team has already proven to understand its business in this area. Because Saturn Oil & Gas is currently valued lower than Russian oil producers at a time of greatest political tension and falling oil prices, investors with a sense of substance should look closer at the Company. Because Saturn Oil & Gas is also pursuing a sustainability approach and oil will continue to be needed in the coming years, the Company appears to be a promising opportunity.
Transformation at all levels
Saturn Oil & Gas plans to meet its operational transformation in other ways as well: In the form of a reverse split, the Company intends to reduce its share count and end its existence as a penny stock this summer. When this happens, and production figures prove that the key data of the takeover are well-founded, the broad market should also recognize the potential around the share.
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