June 15th, 2022 | 11:45 CEST
K+S, Erin Ventures, Nvidia - Buy high-class shares when the cannons roar
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"[...] In Canada, there is $1.75 of debt for every dollar of disposable income - and that was true even before the pandemic. [...]" Karim Nanji, CEO, Marble Financial
K+S - P/E ratio of 2
Since mid-April, the share of the Kassel-based fertilizer producer K+S has been consolidating. At its peak, the share lost 35% of its value. One reason for this is the fall in fertilizer prices, some of which fell significantly in May. But despite the decline, prices are still 90% higher than they were a year earlier when K+S's rise began. According to Bloomberg, the US government is pushing companies to import more fertilizer from Russia. Yet sanctions against Belaruskali and Uralkali remain in place. The US is obviously afraid of a food crisis. Demand for potash remains high as crop shortfalls from Russia and Ukraine seek to be absorbed.
A share price decline is incomprehensible when looking at the Kassel-based company's quarterly results. Sales climbed 65% to EUR 1.2 billion and operating profit quadrupled to EUR 524 million. Accordingly, forecasts for the current year have been adjusted upward. Strong quarters still lie ahead for the Group, so profit is expected to be between EUR 2.3 billion and EUR 2.6 billion. With a current market capitalization of EUR 4.6 billion, the price/earnings ratio is just 2, which is extremely favorable for a group with these prospects.
A rumour from June 14, according to which BHP wants to cooperate with K+S in the development of a Canadian potash mine, also promises an upswing. If this is confirmed, a takeover of K+S could even be on the cards in the long term. The share is currently quoted at EUR 24.60. This is significantly below the price target of JPMorgan, who issued a price target of EUR 44.50 on June 13. The Group paid out a dividend of EUR 0.20 for the past year. If the Company achieves the newly set targets in 2022, there could be an increase here.
Erin Ventures - Breaking up an oligopoly
The Canadian company Erin Ventures is active in an area dominated by Rio Tinto and a Turkish state-owned company. It is all about borates, which is not an obvious concept even for experienced commodity traders. Borates are used in many areas, such as fertilizers, magnets, ceramics, LCD screens, solar panels, semiconductors, and glass and glass fibers. Without borates, there would be no Gorilla Glass in smartphones or tablets, and borates can even be used for shielding. Erin Ventures owns the Piskanja boron project, located in Serbia, and covers an area of approximately 3 sq km. The latest mineral resource estimate from an independent source suggests a total of 3.4 million tons of boric oxide on the property.
That represents a high-grade boron deposit in a historic mining region with good infrastructure. To develop the project, the Company decided last November to enter into a joint venture with Temas Resources. Temas can acquire up to 50% in the project, paying for it with 250,000 shares and 250,000 options, and has committed to invest EUR 10.5 million in the Piskanja project. Currently, the Company is working on an updated economic analysis (PEA), as the old one dates back to 2014 and assumes about USD 2 billion in total revenues with a mine life of 21 years and a net margin of 68.7%. The upcoming PEA will include detailed deposit modeling, which is essential for the mining license process and can be reused in the future feasibility study.
As soon as the new PEA is available, the feasibility study is to be completed this year. Construction of the mine, which is expected to produce 200,000t of boric oxide per year, is expected to be completed by the end of 2025. Around EUR 41 million will be needed for construction. The equity share is to be EUR 10.5 million. Within two years after the start of the mine, a boric acid plant is to be built, which will cost around EUR 9 million and is to be financed from cash flow. The borates market is an oligopoly, with two producers covering 70% of the market. However, demand is increasing and will outstrip supply in the medium term, thus ensuring rising prices. The share is currently quoted at 0.065 Canadian dollars (CAD) and has a market capitalization of only around CAD 10 million. Therefore, the Company is undervalued according to the available facts.
Nvidia - Fundamentally, it looks good
Nvidia has made a name for itself as a graphics card manufacturer and has grown as a result. Meanwhile, the Group also offers computing and networking solutions. Its graphics cards (GPUs) now serve as the brains for computers used in virtual reality, high-performance computing and artificial intelligence. All-natural cloud based. This was reflected in the latest quarterly figures when the data center division reported higher revenue than the gaming division. The Group has now positioned itself broadly, as demonstrated by its cooperation with Mercedes-Benz.
On May 25, Nvidia reported a record quarterly revenue of USD 8.29M. An increase of 46% compared to the previous year. USD 3.75 billion came from data centers. The division was able to increase by a whopping 83%. The gaming division contributed USD 3.62 billion, an increase of 31%. But the Company has done a lot of research and development, and this year it will introduce the largest number of new products in Nvidia's history. This will take artificial intelligence, graphics, Omniverse, self-driving cars and robotics to a new level in many areas.
So why has the stock plummeted? The price-to-earnings ratio is still around 40, which is not cheap. Last year, this ratio was much higher. Many graphics cards were bought for mining cryptocurrencies. However, since Bitcoin and Co. have fallen, mining is hardly worthwhile anymore. This demand is slipping away, but gamers are now getting access to the GPUs again. The share is currently trading at USD 156.47. If this support level does not hold, a test of USD 135 is likely. In the long term, you cannot go wrong with an investment in the leading graphics card manufacturer.
Psychology plays a significant role in the stock market game. One should not enter when everyone is buying but wait for a more favorable moment. When everyone is selling is often a good time to get in. It is not often that one finds shares like K+S with a current price-earnings ratio of 2. At Erin Ventures, investors have the opportunity to invest in borate. A market that hardly anyone knows yet, but which is very lucrative. An investment in Nvidia is certainly worthwhile in the long term. The areas of virtual reality, deep learning and artificial intelligence are still in their infancy, but they have what it takes to change our lives.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.
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