Commerzbank, Viva Gold, Plug Power - What is next for the markets?

Commerzbank - Share price decline despite good figures

Commerzbank is sensitive to interest rates. The share's upswing is closely linked to rising interest rates, which can be seen well in the figures for the 2nd quarter. The Company's operating profit rose by a remarkable 19% to EUR 888 million, while net income increased by 20% to EUR 565 million. The bank increased its revenues to EUR 2.6 billion, up 9% YOY. This success was driven by strong business momentum in the customer segment and the positive impact of interest rates. Net interest income climbed by a whopping 44% YOY to EUR 2.13 billion.

With regard to the outlook for net interest income, management expects at least EUR 7.8 billion this year and, consequently, a significant increase in net profit. A notable cost reduction was also achieved, with the bank reducing expenses by 2% to EUR 1.5 billion. This is in line with the strategic focus on efficiency and sustainable profitability. The cost/income ratio for the first half of 2023 was 61%, compared with 64% in the prior-year period. The bank's capital position was also further strengthened, with the CET1 ratio increasing to 14.4%.

Given this solid capital position, Commerzbank has announced its intention to seek approval for a further share buyback from the European Central Bank (ECB) and the Finance Agency. These results highlight the positive direction in which Commerzbank is moving, and as long as interest rates in the eurozone continue to rise, the bank will benefit disproportionately. Shareholders reacted to the figures by selling, partly due to poor communication from management and the share buyback program that has not yet started. The share is available for EUR 10.21.

Viva Gold - Drill results expand mineralization

Canadian explorer Viva Gold would particularly benefit from a rising gold price, as the preliminary economic assessment (PEA) for the Tonopah gold project assumes a price of USD 1,400 for the precious metal. Currently, the gold price is above USD 1,900. This would increase the pre-tax internal rate of return (IRR) from 25% to about 60%, and the project would have paid for itself in less than 2 years. The Company has consistently expanded its resource estimate over the past several years and now arrives at 394,000 ounces of gold measured and indicated. An additional 206,000 ounces have been inferred accordingly.

The Company has already been active this year and presented the first 7 drill hole results from its RC drill program on June 6. 2 holes drilled as step-out holes, each exposed 2 zones of mineralization and extended the high-grade fault zones. Results from the missing 11 holes followed on July 24. Top grade gold was 15.7 g/t, while silver was 16.4 g/t. Several zones of gold mineralization were found near surface. Several drill holes have helped to define the boundaries of the deposit further.

In parallel, Viva Gold is running metallurgical tests with gold recoveries ranging from 50% to 93%. Phase II agglomeration/heap leach testing is currently underway, with recoveries of 85%. The feasibility study is expected to start by the end of 2023. Required data and studies are already in progress, with some already completed. In early 2024, the EIS permitting process is to be initiated. Around the end of 2024, the construction decision is due. Viva Gold's stock is currently trading at CAD 0.125. On May 12, it was still at CAD 0.195. During this period, there has been no news to justify this decline.

Plug Power - Disappoints once again

Plug Power operates in a growth market. When interest rates climb, the Company has difficulty accessing fresh capital. After having already frustrated shareholders last year, the Company disappointed again with its second-quarter results. While sales were better than expected, investors are frustrated by continuing project delays and difficulties in implementation. Plug Power's Electrolyser segment was particularly affected, which saw sales decline by over 80%. The core Material Handling business, which offers hydrogen fuel cells for industrial trucks, is also struggling with problems that are affecting profitability.

Construction of hydrogen plants has been delayed by at least 6 months. Analysts express concerns about the Company's financial performance. Operating income was down about USD 234 million, despite a 72% increase in sales. This shows that the overall gross margin remains in negative territory. In a letter to shareholders, Plug Power emphasized its commitment to increasing profitability by the end of 2023 and reducing costs by 2024. The Company is looking for financing options to support its plans, as it is running out of cash.

As an investor, it is important to keep a close eye on Plug Power's progress and possibly hold off on major investments until clearer signs of successfully overcoming its current challenges are visible. The share has now returned to the support area of USD 8.94. If this level is not defended, the small upward trend that has formed since mid-May is history. Currently, the share is trading at USD 9.11.

For Commerzbank, rising interest rates are a blessing. The profits are flowing. Gold remains largely unaffected by the recent interest rate increases. This is good for Viva Gold, whose project is worth significantly more this way. After the price drop, it might be worth taking a closer look at the stock. For Plug Power, the increased interest rates come at the wrong time. The Company needs fresh capital to maintain growth. At the same time, margins need to improve significantly to achieve at least a positive gross margin.