Evotec, DroneShield and Power Metallic Mines: Turnaround Opportunities, Defence Boom and Commodities Hidden Gem

Evotec: A Breath of Fresh Air in the Research Lab

At the Hamburg-based drug discovery company Evotec, almost literally no stone is being left unturned at the moment. Longtime Chief Scientific Officer Cord Dohrmann is leaving the company at the end of September by mutual agreement. This shakeup on the key research floor is not exactly calming the nerves of many investors, who are already frustrated by the stock's price performance, but is instead causing even more anxiety. Nevertheless, there has recently been some good news, as positive statements at a conference briefly propelled the stock straight to the top of the SDAX.

Operationally, however, the company still faces the daunting task of sustainably reigniting profitable growth. Most recently, after a long decline, Evotec's share price has been fluctuating within a fairly narrow range of EUR 2.90 to EUR 3.10.

While an important milestone in the collaboration with the US Pentagon offers some room for optimism, it does little to alleviate the company's internal challenges. To raise operating EBIT and margins back to a healthy double-digit level, the future head of research must deliver measurable results as quickly as possible.

From a valuation perspective, following the sharp price declines, the stock is certainly worth a look for extremely bold contrarian investors. Dividend seekers are somewhat out of place here and are likely to come away empty-handed.

Analysts at Berenberg have rated the stock a "Hold" and see a fair price target of EUR 3.60. If the operational turnaround succeeds, there is significant upside potential here, but the risk of further disappointments continues to loom large over the stock.

From the biotech sector, we now turn our gaze skyward to drones.

DroneShield: Defence Against the Threat from Above

The global threat posed by unmanned aerial systems is growing rapidly, and this is precisely where DroneShield comes into its own. Specializing in modern drone defence, the company is well-positioned amid rising defence spending and is drawing increasing investor attention as a hot turnaround stock.

Anyone looking to secure airspace today can hardly do so without the Australian company's modern jammers and radar systems. Given global conflicts and potential new flashpoints, this geopolitical trend is likely to continue and could potentially give the stock strong rebound momentum.

DroneShield's electronic warfare business model is driving rising revenue. Gross margins across the software and hardware mix are in a comfortable range, which should continue to support EBIT. The company could evolve from a mere "hopeful" into a true "cash flow generator". Given the tense global situation, the order books are full—which is not necessarily the worst of circumstances.

However, despite the decline, the fundamental valuation is still quite ambitious and leaves little room for major "slips-ups" in the upcoming quarterly results. As long as the defence boom continues, the stock remains an interesting, albeit risky, investment for bold investors speculating on a rebound toward EUR 1.50–1.80.

While drones are still circling in the sky, some investors are now turning their attention to raw materials, because without them there would be no drones—and no drone technology.

Power Metallic Mines: Success Through Polymetals

At Power Metallic Mines, the polymetallic Nisk project is the centre of attention, especially because of its exceptionally rich Lion Zone. The focus here is on strategically vital metals of the future, such as copper, palladium, platinum, gold, silver and nickel.

On September 8, the company presented a solid initial resource estimate for Lion, which averages a robust 3.9% copper equivalent. An impressive 4.145 million metric tons, representing over 85% of this resource, already fall into the highly reliable "Indicated" category, which helps mitigate geological risk for investors.

On the operational front, management followed up immediately on September 22, reporting excellent drilling results from depth. Drill hole 26-125 intersected a remarkable 5.70 m at a vertical depth of nearly 800 m, with an outstanding copper equivalent grade of 14.00%. This has expanded the well-known Lion Zone by a whopping 25% in depth, with ore grades, encouragingly, increasing even more significantly. Furthermore, initial tests show excellent metallurgical recovery rates for copper of over 98%, which should make future production costs highly efficient.

From a technical analysis perspective, after the strong rise from CAD 1.00 to CAD 1.55 in just a few weeks, the stock is now in a healthy and normal consolidation phase. The stock is now correcting this rapid rise and has moved precisely into the key support range of CAD 1.10 to CAD 1.15. Currently, the price is trading slightly above that range, around CAD 1.17. This lower level, compared with the CAD 1.50 prices seen just a few weeks ago, could offer an attractive risk-reward ratio for entry. Even at prices around CAD 1.25 to CAD 1.30, the stock would already have broken out of this fairly steep upward consolidation trend.

From there, the price could quickly move back toward the previous all-time highs above CAD 1.50. In the longer term, strong drilling results suggest enormous potential, which could drive the price toward CAD 2.00 or even CAD 3.00. That may sound like a lot at first, but GBC's analysts also recognize the same fundamental potential and have set a price target of CAD 3.00.

Investors who believe in the long-term boom in polymetals will find an interesting and operationally sound turnaround story with good prospects here.

Following the recent management shakeup, Evotec must quickly regain the trust it has lost among investors; however, at current depressed price levels, it offers exciting rebound opportunities for bold contrarian investors. DroneShield is riding the wave of global defence spending and is well-positioned and structured from an operational standpoint, even though the stock is now fairly highly valued. Power Metallic Mines stands out thanks to a magnificent polymetallic deposit in Canada and is delivering excellent drilling results. After a period of consolidation, the stock has reached a more attractive valuation and support level, offering investors long-term upside potential, as confirmed by analysts.