July 2nd, 2021 | 14:23 CEST
Deutsche Bank, Heidelberger Druck, Saturn Oil + Gas - These are the 200% opportunities!
Table of contents:
"[...] The Oxbow Asset now delivers a substantial free cash flow stream to internally fund our impactful drilling and workover programs. [...]" John Jeffrey, CEO, Saturn Oil + Gas Inc.
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.
Deutsche Bank - Successive improvement at the industry leader
Since 2008, Deutsche Bank has been a stock that has brought joy to few investors. A former market capitalization of EUR 150 billion was reduced by 90% to around EUR 15 billion due to the Lehman financial crisis and subsequent Greek bailout. At the low point, there was even a belief in a takeover from abroad; European banks, in particular, were able to emerge from the crisis much better.
In the last 3 years, there have been many changes at the German industry leader. The withdrawal from the proprietary equity trading business was announced, although today, a focused equity issuance business continues. In addition, the bank has changed its trading business, particularly in interest rate products, to accelerate reducing its portfolio of non-strategic assets. In aggregate, this has allowed them to reduce risk-weighted assets by about 40% since 2019. That is a complete transformation.
These measures have now enabled Deutsche Bank to focus on core businesses in which it has a strong market position. That applies to business with corporate clients, financing, foreign currencies, advisory and issuing business, private client business and asset management. The realignment, however, is still rocky because there is now a lack of experts in international business.
The Deutsche Bank share was able to swing up by 60% from its low in 2020 at EUR 6.76. The share price is still rising. If the DAX continues to run in the second half of the year, the DBK share would be a perfect late bloomer with doubling potential if the operating figures continue to improve.
Heidelberger Druck - The turnaround has been achieved
Heidelberger Druck has been on our radar several times recently. Now, the share has made substantial gains in the wake of good annual figures. The Annual General Meeting for the past year will be held on July 23, 2021. The new strategic orientation, in particular, will be a major topic here. Given a brightening order situation and increasingly positive effects from the Group's transformation Heidelberger Druckmaschinen is confident of returning to a profitable growth course in the new financial year 2021/22, which runs from April 1, 2021, to March 31, 2022. Therefore, the Company anticipates an increase in sales from EUR 1.9 billion to at least EUR 2.0 billion despite the ongoing uncertainties regarding the duration and extent of the adverse effects of the Covid-19 pandemic.
Heidelberger Druck has positioned itself in a leaner and more efficient manner due to the comprehensive transformation initiated before Corona. As demand is now also picking up noticeably in most key sales regions, the margin for this year will increase significantly and positively impact the after-tax result. The significant growth potential now lies in packaging printing, particularly in digital business models and in China and new technologies. Heidelberger has specialized in wallboxes for loading e-vehicles. Despite the extensive investments in expansion, Heidelberg is already in the black in this area.
The share started to run at around EUR 0.70; we had already advised entry at EUR 1.05. After doubling in price in just 6 months, a further 50-100% should be possible in 2021. In the long term, the Heidelberg share can also return to EUR 5, but it may take a little more time.
Saturn Oil & Gas - A completely new oil and gas company
For a long time, there was speculation about what would happen next at Saturn Oil & Gas. Now the Canadians have landed a major coup, but the stock market has probably not yet understood the structure of the whole thing. Since the end of June, the deal has been in the bag, and now that Canadian regulators have approved the prospectus, its entire financing structure is official.
The fact is that a capital investment of CAD 93 million and the acquisition of assets from Crescent Point Energy Corp. will result in a twenty-fold increase in production. You read that correctly: Factor 20. Saturn last produced about 350 barrels per day (BPD), and now output will increase to about 7,200 BPD. At current WTI prices of just under USD 75, that is USD 540,000 in revenue per day or the equivalent of USD 197 million in production volume per year. The EBITDA margin at the current WTI price is a dream-like 60%. Assuming slightly weaker oil prices at the end of the year would mean revenues of around CAD 130-150 million for 2021, leaving a good CAD 60 million in operating cash flow after financing costs.
Completely incomprehensible is the current quotation of Saturn Oil & Gas shares. It oscillates with large turnovers between CAD 0.15 and CAD 0.18, which results in a market capitalization of CAD 85 million with the now new number of shares of about 502 million. Add to this CAD 120 million in debt financing, which provides an enterprise value (EV) of CAD 205 million. Saturn is thus trading at a current P/E of 2.5 for 2021. Next year, these numbers read even better, as performance is then calculated over a full 12 calendar months. Prudently, we even expect a slight discount to the oil price of up to 15-20%, which would then push the P/E ratio up to 3. However, due to the high free cash flow and the rapid deleveraging, the book value per share is also growing at constant rates.
Certain market participants have miscalculated and sold the stock short for now. On official pages, one can see an aggregated short position of about 10 million shares, which of course, would have to be covered again at some point. The analysts of GBC published a price target of CAD 0.46. Conclusion: The small Saturn Oil & Gas has grown up; the share offers a clear 200% chance. From today's perspective, this can still become quite bitter for the short-sellers.
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