January 7th, 2022 | 11:36 CET
Deutsche Bank, Troilus Gold, Allianz - Interest rate hike and the consequences
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"[...] We can make a big increase in value with little capital. [...]" David Mason, Managing Director, CEO, NewPeak Metals Ltd.
Deutsche Bank - New price targets
While the overall market took a beating following the publication of the Fed minutes, financial stocks, in particular, showed relative strength. Market participants see money houses as the primary beneficiaries of increased interest rates. As a result, the European banking sector index STOXX 600 Banks rose to its highest level in three and a half years. The share price of Deutsche Bank was also boosted. With a gain of more than 5% to EUR 12.25, the chart overcame a resistance that existed from 2018 and may have overcome its bottoming phase that has been ongoing for more than three years.
Fundamentally, the Frankfurt-based bank achieved further essential steps in its group restructuring. In the course of the sale of the hedge fund business and electronic equity trading to BNP Paribas, the transfer of customers, technology and employees to the rival was completed at the end of the year, the institutions announced.
The DAX-listed group is also planning to enter Asia by setting up a joint venture with the asset management unit of Postal Savings Bank of China. The Chinese capital market has been open to asset managers and foreign banks since 2019. Investment bank JP Morgan confirmed its price target of EUR 15.00 in a study and continues to rate the stock as "Overweight".
Troilus Gold - Sleeping giant
On the other hand, the announcement of several interest rate hikes burdened the gold price in the short term. The precious yellow metal fell again below the critical support at USD 1,800 per ounce. As good as the fundamental prospects are in the long term with a historically high level of government debt and rising inflation, in the short term, the precious metal could once again test the lows of last year at around USD 1,680.00 per ounce. However, a more significant setback would be an excellent opportunity to dare an anti-cyclical entry in the longer term.
From the second row, investors should have the shares of the exploration company Troilus Gold on the watchlist. The junior mining company focuses on systematic development and risk mitigation of the former Troilus gold and copper mine. From 1996 to 2010, the mine produced more than 2 million ounces of gold and nearly 70,000t of copper. It is located in the world-class mining region of Quebec, Canada, where the Company holds a strategic land position of 1,420 sq km in the Frôtet-Evans Greenstone Belt.
Troilus Gold is advancing technical studies following the completion of a robust PEA in 2020. The latest 2020 value study produced a total after-tax valuation of USD 915 million at 8.1 million gold-equivalent ounces, approximately 85% gold and 15% copper. The return on investment (IRR) was calculated at 32%, and the investment would be recouped in 3 years. A gold price of USD 1,750 per ounce was used as the basis for these calculations. A new resource estimate and the results of a pre-feasibility study are expected to be published in the current year, which could generate new share price potential.
The share price of Troilus Gold is currently at CAD 0.74 after a correction of almost 50%. Several analyst firms see the share as a clear buy candidate. Laurentian Bank Securities issued a "buy" rating with a price target of CAD 3.30. The analysts at Stifel formulate a target of CAD 4.00.
Allianz AG - Profiteer of the Fed minutes
Like Deutsche Bank, the insurance group Allianz was also able to profit. With a plus of 3%, the Munich-based Company is enthroned at the top of the DAX. Further price potential could arise if the 2021 high of EUR 223.40 is exceeded.
The DAX company is receiving support from several analyst firms. The experts at Deutsche Bank raised their target price for the insurance group from EUR 240 to EUR 250 and continue to rate the share as a "buy". Rising bond yields are good for the balance sheets. Against this backdrop, Allianz is among the strongest recommendations as a value stock and in anticipation of medium-term price drivers, wrote analysts Hadley Cohen and Oliver Steel.
Due to the publication of the FED protocols, which point to faster interest rate hikes, financial stocks such as Deutsche Bank and Allianz benefit in particular. In contrast, the gold sector corrects. Given the continued high inflation, shares such as Troilus Gold should become attractive in the long term at current levels.
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