January 10th, 2024 | 07:15 CET
Evotec, Defense Metals, PayPal - There is movement here. Where is it worth getting in?
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"[...] As a company dedicated to developing treatments for rare heart diseases, we see this as an opportune moment to contribute to the fight against heart disease and make meaningful strides in improving heart health worldwide. [...]" David Elsley, CEO, Cardiol Therapeutics Inc.
Evotec - CEO resigns
The Evotec share started to establish an upward trend in October 2023. However, the share plummeted on January 4, breaking the established trend. The reason for this was the surprising resignation of CEO Werner Lanthaler for personal reasons. As a temporary solution, Supervisory Board member Dr. Mario Polywka has taken over the position of CEO on an interim basis. It is unknown whether the resignation has anything to do with Lanthaler's delayed directors' dealings. The Company intends to automate this process in future. There were failures here that should not be repeated in the future.
December was a promising month. The biotech company Evotec secured license fees through the approval of a sleep disorder drug from its partner, Zhejiang Jingxin Pharmaceuticals, in China. On January 8, the Company announced it would receive a milestone payment of USD 25 million from its partnership with Bristol Myers Squibb. The money will be used for further research into active substances in the field of nerve diseases. The partnership, concluded in 2016 and extended from 2023 to 2031, could total up to USD 4 billion. The milestone payment supports Evotec's annual targets and surprised analysts positively.
Another profitable partnership could be the one with Owkin. Both companies want to accelerate the discovery and development of new therapeutics in the field of oncology and immunology with the help of AI-supported platforms. Operationally, things are going well. The penalties due to the delayed director dealings should not exceed EUR 1 million. Warburg Research has issued a "Buy" recommendation with a price target of EUR 29. Deutsche Bank and RBC Capital Markets leave the share at "Hold" with price targets between EUR 18.60 and EUR 20.00. The share is currently trading at EUR 18.10.
Defense Metals - Feasibility study nearing completion
The Defense Metals share was under pressure in mid-December during the tax loss season. The share then exploded upwards by over 80% within a few days. The share subsequently gave back some of its gains, but the long-undervalued stock still came into focus. The Company owns a large rare earth deposit in British Columbia, Canada. The project, known as Wicheeda, covers 6,759 hectares and has a mineral resource of 34.2 million tons of material with an average rare earth oxide (TREO) grade of 2.02%. These figures were announced in September and represent a significant increase on the previous estimate.
The Company is currently working on the preliminary feasibility study (PFS). Phase II and III collection of all infrastructure-related geotechnical field data for the study was completed in December. CEO Craig Taylor expects the PFS to be completed in Q2. On January 9, Defense Metals announced that it has signed a Memorandum of Understanding with Ucore to collaborate on rare earths. As a first step, Ucore will receive a composite sample of rare earth carbonate from the hydrometallurgical pilot tests to test processing at a UCore facility. The CEOs of both companies emphasized the importance of cooperation between companies in North America regarding rare earths.
Currently, the world is dependent on China for rare earths. Due to the smouldering trade dispute between the US and China, there is an urgent need to remedy this situation. Raw materials are needed in various sectors such as agriculture, healthcare, electronics, energy, aerospace, defense and the automotive industry. More rare earths are needed for electric cars in particular. It is estimated that 1-3 kg are needed per electric vehicle. With 10 million new vehicles, we are talking about 20% of current global demand. Demand will, therefore, increase. The share is currently trading at CAD 0.225. The December high was CAD 0.275.
PayPal - The turnaround may have already begun
In 2021, PayPal shares were already trading at over USD 309, benefiting from the coronavirus lockdown. Since then, it has fallen to USD 50.25 in October 2023. The share has been robust since the low and has formed an upward trend. Is this sustainable? The Company has long been known for steady growth and a solid business model, experiencing a share price decline due to challenges in 2022 and 2023. Nevertheless, there are signs of an imminent recovery that should make investors sit up and take notice.
After sales declined as expected with the end of the lockdown, the wind may have turned with the Q3 figures. Turnover rose by 9% to USD 7.8 billion and surprised with positive key figures such as transactions per account or total transactions. Margins have declined due to the white-label solutions, which the management intends to compensate for with a savings program amounting to USD 900 million. Investors will find out whether the first successes are already visible on January 30, when the figures for the fourth quarter are to be published.
Analysts expect earnings per share to increase by around 10%. Over the year as a whole, earnings per share should even rise by more than 20%. This could provide a further tailwind. The fundamental data also looks favourable for a major technology stock. The price-to-earnings ratio is below 12. The developments at PayPal are reminiscent of other tech stocks, such as Nvidia or Meta, which have shot up significantly after a deep decline. The average price target of analysts is USD 76.27. The stock is currently available for USD 61.40.
There has been plenty of movement at all three companies recently. Nobody would have thought that the resignation of the CEO at Evotec would trigger a shortfall of over 20%. Operationally things are going well. Defense Metals has made a leap upwards. Given the progress the Company has made recently, this was overdue. Once production starts the share needs to be revalued. PayPal has suffered in recent months. A bottom now seems to have been found. Whether it will experience a comeback similar to Nvidia or Meta remains to be seen. However, the share does have upside potential.
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