February 2nd, 2022 | 11:44 CET
Gazprom, Saturn Oil + Gas, Shell - Profit from rising energy costs
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Gazprom - Ukraine conflict weighs on results
Operationally, Gazprom is doing great. Oil and gas prices are rising, and since gas prices are often linked to oil prices, business is excellent. They could be even better if the Company were to receive the permits for Nord Stream 2. The EU has classified gas as climate-friendly, and natural gas storage facilities in Europe are not as full as one would expect for winter. But the Company has become a pawn in the Ukraine conflict. As early as last year, American tankers set out to deliver natural gas to Europe.
If the Ukraine conflict escalates, it will have consequences for Gazprom, even though Germany receives 55% of its natural gas from Russia. The question remains, how independent can Germany become from Russia? According to studies by various institutions, this won't be easy. In terms of energy imports, Russia is in first place almost everywhere. According to Handelsblatt, the US and Qatar are discussing how to make Europe less dependent on Russia. Soon, the Emir of Qatar is expected to hold talks with Joe Biden in the USA. Until then, it remains to be seen how the situation around Ukraine will develop.
Fundamentally, Gazprom looks just as good as it does operationally. The price/earnings ratio is below 4, and the dividend yield should be well over 10% if the Company pays out 60% of its profits. Last year, from April to October, the share price rose to EUR 9.44, as if pulled by a string. After that, a consolidation set in due to the Ukraine crisis, which pushed the share down to EUR 6.28. The share is currently trading at EUR 7.65.
Saturn Oil & Gas - Waiting for the next quarterly figures
Saturn Oil & Gas is benefiting from the high oil price. The Canadian Company underwent a transformation in 2021, managing an acquisition of 6,700 barrels of light oil production. The purchase price was approximately 93 million Canadian dollars (CAD). A bargain when comparing the transaction to other acquisitions. In the third quarter of 2021, the Company took in about CAD 48.5 million on operating expenses of about CAD 19 million. The Company intends to repay the debt as quickly as possible. It should be ready by 2023 at the latest. Since the Company has hedged parts of the production to guarantee the debt reduction, the revenues are not yet as high as they could be.
In order to further ramp up production, the Company plans to reactivate 200 wells this year. The goal is to produce at least 8,000 barrels a day by the end of 2022. In the process, Saturn always keeps an eye on the ESG criteria. If wells become unprofitable and inactive, the Company will recultivate the site.
The Company is also active in the social sector, as indicated in the January 26 announcement. Saturn is sponsoring an ATP tennis tournament in Troisdorf, with former Davis Cup winner Marc-Kevin Goellner serving as co-tournament director. The tournament ideally complements the commitment to KidSport Canada. During the tournament, donations will also be collected for youth sports facilities in the Ahr Valley. Anyone who wants to see top tennis should come to Troisdorf from May 22 to 29.
Before that, interested investors should keep February 17 in mind, as CEO John Jeffrey will be presenting the Company at the International Investment Forum. With a bit of luck, the figures for the fourth quarter will be available by then, and any questions can be addressed directly to the CEO. The price targets of the analysts range from CAD 10.15 to 12.17. The price/earnings ratio is around 2, which compares favorably with the competition. The share is currently trading at just CAD 3.47. With the upcoming quarterly/annual figures, progress in debt reduction will be evident. It seems only a matter of time until the stock reaches new highs.
Shell - New name and headquarters
2021 was not an easy year for Shell after the Amsterdam ruling and the task of significantly reducing its CO2 emissions by 2030. The Company got rid of its old name Royal Dutch Shell and moved its headquarters to London to avoid quarrels with the Dutch authorities. As commodity prices rose, things began to look up operationally as well.
After selling its Permian business for USD 9.5 billion, the Company announced it would put USD 5.5 billion of that into a share buyback program totaling about USD 12 billion. In addition, there is money for share buybacks from free cash flow. However, there was also a hint that the fourth quarter numbers could be worse than expected due to problems caused by Omicron.
For this reason, investors should watch out for February 3, when Shell plans to present its fourth-quarter results and announce its dividend in the same breath. Earnings of EUR 0.69 per share are expected for the quarter. Currently, the stock is trading at EUR 22.85 and has formed a nice upward trend. The analysts at Berenberg see the price target at EUR 28.20. The dividend at the current price is around 3.8%.
At the moment, it looks like the demand for oil and gas exceeds supply. In addition, there are political tensions in various regions of the world. Gazprom could be affected by sanctions, but even so, the group will likely find buyers in Asia. Saturn Oil & Gas is highly undervalued. Once the debts have been paid off, shareholders can expect dividends or a share buyback program. Shell has left Europe, so to speak, but is still working to transform into a sustainable group.
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