March 31st, 2022 | 10:30 CEST
K+S, Saturn Oil + Gas, Salzgitter AG - Growth market for raw materials
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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
K+S AG - Where is the correction?
For investors who have invested in the Kassel-based Company for a long time, a minor setback would be more than bearable; it would be a gift for those who are waiting for a favorable entry point. Since March 2020, the outbreak of the Corona pandemic, the K+S share has marched from high to high and increased more than six-fold during this period.
A detailed article shows that the share of Europe's largest potash producer alongside Uralkali and Belaruskali is not yet excessively overpriced, even at the current level. Potential arises from the fact that the MDAX company reduced its net financial debt by 82% last year with the sale of its American salt business Americas. CEO Dr. Burkhard Lohr also intends to focus on efficiency and cost awareness in the future. The focus is set on the core business with potash and magnesium products. His three main points for the near future are the optimization of the existing business, the expansion and further development of the core business and the opening of new business segments.
The forecasts for 2022 are optimistic and assume that potash prices will continue to rise or remain at a high level. Management sees an EBITDA target range between EUR 1.6 billion and EUR 1.9 billion. Against this background, adjusted free cash flow should rise sharply to between EUR 600 million and EUR 800 million. From a chart perspective, the share is already in the overbought zone, which means that a more significant correction to the EUR 20 to EUR 22 range would be possible. However, the share price should continue to move north in the long term. The all-time high was EUR 97.35 in 2008 after adjusting for the split.
Saturn Oil & Gas - Fundamentally strong
Do you know what K+S and one of the largest oil producers in North America, Saturn Oil & Gas, have in common? Both own mines and wells, respectively, in Saskatchewan in Canada. Saturn Oil & Gas, which already completed a major acquisition last year and was able to expand its production quotas by a factor of 20 virtually overnight, has now been able to announce yet another inorganic expansion. With oil prices well into double digits, the Canadians took over synergistic oil and gas assets in west-central Saskatchewan for around CAD 8.3 million. The synergistic assets are located in the Plato area of west-central Saskatchewan and complement the Company's existing Viking assets.
The board of directors approved full-year 2022 capital expenditures of CAD 50 million, and annual concept guidance has been issued. As such, production is forecast to be between 7,800 to 8,200 BOE per day, generating secured EBITDA in the range of CAD 73 to 77 million. In the fourth quarter, production per day is expected to grow to between 8,100 and 8,500 BOE. That represents an increase of between 12% and 17% compared to the fourth quarter of 2021.
Implied debt-adjusted cash flow is expected to be between 24% and 27% based on enterprise value of CAD 126.5 million. In addition, net debt is expected to be reduced to CAD 39.4 million by year-end 2022.
Saturn Oil & Gas' market capitalization currently stands at EUR 69.44 million, and its secured EBITDA for the current year is between CAD 73 million and CAD 77 million. That alone should make the hands of any investor who expects the oil price to rise in the long term, and not just because of the Ukraine conflict, clammy. Compared to the peer group, at least, there should be catch-up potential, conservatively calculated with a factor of three.
Salzgitter AG - Bright prospects
Europe's leading steel group recently posted pre-tax profits of EUR 705.7 million, the best pre-tax result in 13 years. The Salzgitter Group's external sales rose to EUR 9.77 billion, up from EUR 7.09 billion in 2020, owing to higher shipments than a year ago and significantly improved average selling prices for most rolled steel products. Earnings per share came to EUR 10.74, following a loss of EUR 5.13 per share certificate in the previous year. A dividend of EUR 0.75 per share is to be proposed to shareholders at the Annual General Meeting on June 2, 2022, representing the largest payout since 2008.
In chart terms, the same principle applies as for K+S. Since the Corona low in March 2020, there has only been one direction, north. It is now crucial for the Salzgitter share to break above the 2018 high at EUR 52.48. Due to the overbought situation, however, there could also be a stronger pullback towards the EUR 34.00 area.
Inflation rates continue to rise, and politicians and central banks currently appear to be petrified. They are trying in vain to counteract this trend, and the sanctions against Russia are causing even more damage to themselves. Commodities such as steel, fertilizer, crude oil, and natural gas are long-term winners. Short-term, sharp corrections should be used to enter the market.
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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