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September 18th, 2023 | 07:40 CEST

Deutsche Bank, Globex Mining, Vonovia - What are the consequences of the ECB's latest interest rate hike?

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  • Gold
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After a long period of zero interest rate policy, the ECB is stepping up the fight against inflation and last week raised interest rates for the 10th time in a row. The effects are very different. For banks, on the one hand, profit may increase via higher interest rates, but it may also decrease if fewer loans can be made. For commodities, the rise in interest rates in Europe could lead to a stronger US dollar. However, this is rather unlikely, as interest rates in the US are still higher. For the real estate sector, rising interest rates are poison. Loans are becoming more expensive, and thus, demand for real estate is falling. Today, we look at one company from each sector.

time to read: 5 minutes | Author: Armin Schulz

Table of contents:

    Bradley Rourke, President, CEO and Director, Scottie Resources Corp.
    "[...] The transaction offers benefits to all parties: Shareholders now have three promising projects in their portfolio. [...]" Bradley Rourke, President, CEO and Director, Scottie Resources Corp.

    Full interview


    Deutsche Bank - Light and Shadow

    Looking at the first half of the year for Deutsche Bank, the respective quarterly numbers were more than decent, and one would not think that Deutsche Bank is among the underperformers in the banking sector. This is due, among other things, to the banking quake to which Credit Suisse, for example, fell victim. When the bank's credit default swap rates shot up, fears spread that Deutsche Bank might also be in trouble. That was not the case, but there has recently been negative news again.

    Above all, there are IT problems in the private customer area with the customers of Postbank and likely also DSL Bank. The migration is going anything but smoothly. Following various customer complaints, BaFin has now intervened and thus increased the pressure on the Group. A piece of positive news from the end of last week could impact the share, as it was announced that Deutsche Bank, in collaboration with the Swiss crypto company Taurus, intends to offer institutional customers Bitcoin custody and trading services. This would open up a new business area for the bank.

    Compared to its European peers, Deutsche Bank is currently characterized by attractive valuation ratios. On the one hand, there is the price-earnings ratio (P/E) of below 5 and, on the other hand, the price-book ratio of 0.3. Competitors are currently trading at completely different valuations. Accordingly, the Deutsche Bank share, which is currently trading at EUR 10.25, has a lot of catch-up potential. Last week, JPMorgan set the price target at EUR 14 and issued a "Buy" recommendation.

    Globex Mining - Clearly undervalued

    The hunger for raw materials is increasing worldwide, and especially critical raw materials are now highly competitive. Lithium, for example, is urgently needed for electromobility. Rare earths, for which China has tightened export conditions, could run out for Western countries, although some technologies rely on them. Investors who want to invest in these critical commodities can buy individual companies or turn to ETFs. Another option is Globex Mining (GMX) of Canada, which has over 232 projects in various metal categories, including precious metals, base metals, and specialty metals. It has nearly all critical commodities in its portfolio.

    55 of the properties have historic or NI 43-101 compliant resources. Development of the projects is undertaken by other companies who are required to invest a certain amount in the project, and in return, GMX receives royalties, options, cash payments or shares. Most properties are located in North America, except for the Bräunsdorf Silver Project in Germany. There, there was an update by partner Excellon Resources. All terms of the agreement have been met, making the project GMX's 91st licensed property. The Company will receive a 3.5% gross metal royalty on precious metals and 2.5% on all other metals after production starts unless Excellon takes the option to reduce the percentages by 1% against a payment of CAD 1.5 million.

    Due to the large number of projects and partners, a constant news flow is guaranteed. On September 8, Brunswick Exploration started its 5,000 m drill program at the Lac Escale Lithium Project. Partner Emperor Metals drilling has uncovered gold grades up to 5.6 g/t at GMX's Duquesne West property. For the Chibougamau project, GMX receives a 2% gross metal royalty from TomaGold for the West Block properties. This is in addition to an LOI for the East Block. At the Crater Lake Scandium rare earth property, Imperial Mining increased the estimated mineral resource to 27.7 million tonnes, representing a mine life of approximately 40 years. With all the good news, it is surprising that GMX's stock is significantly undervalued. At a current price of CAD 0.79, the Company has a market capitalization of just around CAD 44 million.

    Vonovia - A bargain despite high debt?

    For Vonvia, a suspension of the interest rate hike last week would have been a very positive sign, but as we know, things turned out differently. The first months of 2023 were difficult for the real estate group, but since the end of March, things have been looking up on the stock market. The group's Achilles heel is its high debt. But when the figures for the 2nd quarter were announced, it was already announced that all refinancing until the end of 2024 is covered. The vacancy rate of only 2.2% of the total portfolio is also a good figure. EBITDA of EUR 619 million was up 10.3% year-on-year.

    Taking the net asset value calculated by the European Public Real Estate Association as a benchmark, which was EUR 49.67 at the end of the half-year, the share is undervalued. The sale of apartments to Apollo and CBRE has given the Company breathing space. The Group is also striving to cut costs in other areas. In Berlin, a pilot project is underway with decarbon1ze and the electricity transmission grid operator 50Hertz. This project aims to utilize surplus renewable energy within the building to reduce energy costs.

    A remote monitoring system has been installed in around 3,500 elevators to prevent breakdowns based on data transmitted by Senorik boxes. Vonovia has taken over the solution provider, Dr. Schönberger GmbH, and intends to enable other customers to purchase it as well, thus generating another source of revenue. Since the beginning of August, there has been a flurry of buy recommendations. In September, Deutsche Bank and Warburg Research reiterated this, with short targets of between EUR 27.00 and EUR 39.80. The share closed negatively after the interest rate hike on Friday and exited Xetra trading at EUR 23.52.

    The ECB's interest rate move was not entirely unexpected and is unlikely to majorly impact the three companies featured here. Deutsche Bank should solve its IT problems as soon as possible so that DSL and Postbank customers no longer have problems. Operationally, they are on a good path. Globex Mining has many projects that generate royalties at the start of production. Its broad portfolio means it invests in many different commodities. The undervaluation is obvious, especially since the Company also has a share buyback program in place. Vonovia has got refinancing under wraps by the end of 2024. The operating figures are convincing. The share seems undervalued, but the high debt should always be considered.

    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.

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    Der Autor

    Armin Schulz

    Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.

    About the author

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