November 15th, 2021 | 11:31 CET
Infineon, Almonty Industries, K+S - Profiting from supply bottlenecks
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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
Infineon - Forecast increase for the coming fiscal year
The chip shortage in the automotive sector brought attention to the disrupted supply chains. The German Association of the Automotive Industry expects 400,000 fewer vehicles to be produced in Germany alone. There is no improvement in sight. Worldwide, the Corona Crisis has led to more digitalization. For this, more chips are needed, and cars are also increasingly becoming rolling computers. For chip manufacturers like Infineon, the situation is a stroke of luck. They can no longer keep up with production.
The opening of the new plant in Austria in September came at just the right time because demand in the renewable energy and electric vehicle sectors continues to grow, so prices will also continue to rise. That means higher margins and, therefore, more profit. It was reflected in the final figures for the fiscal year that ended September 30. Last Wednesday, record sales of EUR 11 billion were announced, and profits tripled to EUR 1.7 billion.
Group CEO Ploss is also targeting a new record for the coming fiscal year. Sales are expected to rise to between EUR 12.2 billion and EUR 13.2 billion. The profit margin is also expected to increase by around 2.3% to 21%. The analysts of Deutsche Bank, Kepler Cheuvreux, Goldman Sachs and Berenberg rated the stock as "Buy". Several other analyst houses gave the rating "Overweight". The share had already rallied to EUR 43.21 in the run-up to the figures. The stock is currently trading at EUR 42.80.
Almonty Industries - Sandong Mine to open in 2022
Tungsten is used mainly in metallurgy and light bulbs. Due to its high heat resistance and density, it has also been used in military and aerospace applications. But demand for the raw material is growing because a lot of it is needed if a green future is to be implemented. Electric cars and their charging stations and even nuclear power plants need a lot of tungsten. Almonty Industries is on its way to becoming the largest producer outside China. After sudden export stops from China, as recently for magnesium, the pressure grows to become less dependent on the Middle Kingdom worldwide.
The Company is experienced in tungsten, having already mined tungsten in Spain and Portugal. The Sandong mine in South Korea, which is currently being brought into production, is home to one of the world's largest deposits of the commodity. On October 27, the Company reported that 25% of the underground mine had been completed. The guest house has been renovated, the river and the road have been diverted. Currently, 50 people are working at the site, and this number will gradually increase up to 125. According to CEO Lewis Black, the project is on schedule and on budget for commissioning in the fourth quarter of 2022. The Company was also able to meet the last condition precedent for the KfW-IPEX loan and expects confirmation from the bank soon.
Planning security is provided by a 15-year offtake agreement already concluded with the Plansee Group, the largest shareholder. Deutsche Rohstoff AG holds 12.2% of the shares, closely followed by the CEO with 12.1%. Since the beginning of September, the share has been running sideways between CAD 0.82 and CAD 1.00. If there are no difficulties in developing the mine, it is only a matter of time before the all-time high at CAD 1.30 is tested. Interested investors should watch the CEO's presentation from the International Investment Forum. The presentation is available on YouTube.
K+S - Problems with the balance sheet
If one talks to farmers in the area, one hears more and more complaints that there is no more fertilizer. It is surprising because, with K+S, there is a company in Germany that could provide the supply. Therefore, the supply bottlenecks here are particularly surprising. Potash prices have exploded this year. In Brazil, the price per ton has, in some cases, tripled compared to the previous year. Of course, this is excellent news for the Company, after everything looked quite different at the beginning of the year.
With the sale of the salt business in the USA for USD 3.2 billion, the debt mountain was drastically reduced. The Group intends to focus on its core business in the future. It is going well this year, as the Group once again raised its forecast when announcing its figures for the third quarter. Sales increased by 32% YOY to EUR 746 million. EBITDA was EUR 121 million. In the course of this, assets that were impaired last year were also written back.
It is precisely here that K+S currently has a problem, as BaFin commissioned the German Financial Reporting Enforcement Panel (Deutsche Prüfungsstelle für Rechnungslegung) in February to investigate the connections with the impairment. Although CEO Lohr believes operating earnings of EUR 1 billion are possible in 2022, the stock has been on a downward slide due to the ongoing audit. The share was at EUR 15.30 the day before the announcement and then sold off to EUR 13.41. Currently, the price is at EUR 14.53, and the valuation ratios are still favorable.
All producers of currently rare goods are benefiting from the supply bottlenecks, as products are literally being torn from their fingers. Infineon serves the still-growing market of chips and increased its production due to the new factory. Almonty Industries will start up one of the world's largest tungsten mines at the end of 2022. K+S benefits from the high price of potash but is currently struggling with BaFin.
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