Climate Conference and Nel disappoint. BASF and Saturn Oil + Gas shares recommended as Buy

Saturn Oil & Gas: Over 200% share price potential

The latest quarterly figures from Saturn Oil & Gas were convincing. VTC Research has therefore confirmed its "Buy" recommendation, with a target price of CAD 7. The shares of the Canadian junior oil producer are currently trading at CAD 2.20. The price target corresponds to 2.9 times enterprise value divided by EBITDA (EV/EBITDA) for 2024, based on an oil price of USD 87.50 per barrel of WTI. The analysts emphasize the continued considerable discount to net asset value.

From the analysts' perspective, Saturn is right on track to implement its growth strategy. A new production record was set last quarter with an average of 26,265 barrels per day (equivalent). In December, this figure is expected to reach 27,000 barrels per day. Therefore, the VTC forecast of an average of 27,500 per day in 2024 appears very realistic. Cash flow for the third quarter amounted to CAD 76.5 million, and free cash flow amounted to an impressive CAD 41.2 million. For context, the market capitalization of Saturn Oil & Gas is currently just over CAD 300 million.

After Saturn invested heavily in the expansion of production in the current year, analysts expect a significant reduction in debt in 2024. At the end of the third quarter, the Canadians' liabilities amounted to CAD 473.8 million. This corresponds to 1.5 times the annualized cash flow of the past quarter. Therefore, the junior oil producer is moderately leveraged and, overall, not highly valued.

Nel: One piece of bad news after another

Despite the massive sell-off in the current year, Nel ASA is still valued at around EUR 1 billion. And the business development hardly justifies this valuation. Although the loss has been reduced in the current year, it is difficult to predict when the Norwegians will become profitable. Consequently, Nel has recently divested from investments, selling shares in Nikola and Everfuel. Unfortunately, there is no talk of silver linings, as both these companies also experienced a significant loss in value over the past months. Nel CFO Christian Bjørnsen stated: "Nel is in a build-up phase in which we are streamlining the Company and focusing all resources on our own growth. We are, therefore, divesting non-strategic financial positions. With this sale, we no longer own any listed instruments." The sale of the Everfuel shares will generate EUR 9.9 million for Nel. At the beginning of 2022, it could have been ten times that amount.

The recent unfortunate news highlights Nel's need for capital to bridge the gap until profitability. HyCC has cancelled a major order from Nel. The order was for the delivery of a 40 MW electrolyser by the end of 2025. The cancellation is attributed to regulatory frameworks and current market conditions. The order was worth around EUR 12 million, corresponding to around 5% of the order backlog of EUR 241 million at the end of the third quarter. However, there is a glimmer of hope as HyCC and Nel are in discussions about a 50 MW facility, though it is not expected to be realized before 2028.

BASF: Share price jumps after switch to bull camp

BASF shares were among the day's winners in the DAX yesterday. Driven by a positive analyst report, the share price rose by 4% to over EUR 47. UBS has switched to the BASF bull camp. The analysts upgraded the chemical company's shares from "Sell" to "Buy". The price target was raised from EUR 40 to EUR 55. The analysts expect positive business development in the coming years, particularly in the basic chemicals business. The Ludwigshafen-based company is also expected to perform better in other areas in the future. Earnings per share for the next two years have therefore been raised by an average of 32%. The analysts at JP Morgan are even more optimistic about BASF shares. They recently reiterated their "Buy" recommendation with a price target of EUR 58.

The climate conference has yet to provide any new impetus for investors. The lack of a clear commitment to the end of fossil fuels shows that investors should not only focus on "green" stocks. After Siemens Energy and Oersted, the cancellation of orders at Nel is another sign that the sector is facing challenges. In contrast, BASF currently has a lot of momentum, and analyst forecasts for the coming years are perhaps too pessimistic. Saturn Oil & Gas is already cheaply valued. If the significant debt reduction is actually implemented in the coming year, shareholders should soon be able to look forward to a very decent dividend.