December 22nd, 2021 | 13:33 CET
Infineon, Saturn Oil + Gas, S&T - A lot of movement at the end of the year
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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
Bullish outlook for Saturn Oil & Gas
The year was eventful for the Canadian oil producer Saturn Oil & Gas. As early as June, the course was set for a spectacular realignment that saw the Company skyrocket overnight to become one of the leading producers in the Saskatchewan region. With the purchase of the Oxbow properties, production capacity was increased twenty-fold to 7,000 barrels per day. For the next three years, the Company also identified the potential to generate annual free cash flow by optimizing and completing more than 500 existing wells.
The first figures for Saturn Oil & Gas following the acquisition of the Oxbow assets for the third quarter already showed that it had backed the right horse. The producer increased operating cash flow in Q3 by more than a factor of 13 compared to the same period last year, posting CAD 13.9 million. That corresponds to a cash flow of CAD 0.55 per share. Of the CAD 9.5 million in free cash flow, nearly half was invested in three successful wells.
In a revised report, analysts at GBC AG raised their price target from CAD 9.20 to CAD 12.17 based on the Q3 figures. The maturity of the Oxbow asset and the low decline rate of 12% give Saturn Oil & Gas flexibility for future investment, analyst Julien Desrosier wrote in an available research note. The strong hedge against the WTI spot price does ensure debt repayment at the expense of limiting potential revenue growth. However, it creates revenue stability, facilitates long-term forecasts and secures internal financing for growth projects. In addition, the expert believes the Company is ready for the next stage of development. According to him, this is possible both organically and through acquisitions.
Infineon benefits from competition
Germany's largest semiconductor manufacturer, Infineon, benefited from strong quarterly figures from its competitors. From a chart perspective, this impetus was urgently needed to prevent a further slide below the support at EUR 38. A solid quarterly report from US chipmaker Micron and its forecast, which was positively received by the market, gave the Neubiberg-based Company a boost.
The US counterpart reported earnings per share of USD 2.16 and revenue of USD 7.69 billion. Analysts had previously expected earnings per share of USD 2.10 and revenue of USD 7.68 billion. Micron CEO Sanjay Mehrotra attributed the strong numbers in the past quarter to "strong product portfolio momentum." In addition, new solutions for customers in the automotive, data center, client, mobile device and graphics sectors were delivered. Micron is benefiting from future trends such as 5G, AI and the introduction of electric vehicles.
Management is also positive about the year ahead and expects the demand side to remain strong. "Today, it is not just data centers, but all end markets that are driving the data economy," Micron's CEO said. Memory and storage will continue to grow faster than the rest of the chip industry, driven by these new markets. "These things do not just affect calendar 2022; it goes beyond that."
Shares in the Linz, Austria-based technology group S&T plunged more than 25% to a low of EUR 12.42 following a sharp drop in response to a critical report from Viceroy Research. The investment firm, belonging to Fraser Perring, a well-known short-term seller, commented negatively on the valuation of the share and the quality of acquisitions by S&T, the group's growth and the balance sheet.
Despite a detailed statement by the Company and several positive analyst opinions, a significant countermovement is still lacking. The private bank Hauck & Aufhäuser, for example, reiterated its buy recommendation with a target price of EUR 31.
Investors are advised not to reach into a falling knife. Even if the allegations should prove groundless, the situation does not yet appear to have been cleared up from a technical perspective.
The stock market year is drawing to a close, and the chance of new all-time highs has been wiped out with the arrival of the new Omicron variant. Also, the oil price consolidates. The setback offers a long-term buying opportunity in the oil producer Saturn Oil & Gas. The outlook for the next year is favorable for semiconductor producers, while S&T should be observed from the sidelines.
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