15. April 2021 | 07:09 CET
K+S, SKRR, Klöckner Co. - Where are the missing puzzle pieces?
Cyclical investments have the advantage of a certain predictability. Nevertheless, each new chapter and the corresponding script differs, sometimes only slightly, sometimes quite significantly. As far as the cyclicality of commodities is concerned, very diverse categories exist within the asset class so that favorable entry opportunities lurk almost at any time. We have brought you a colorful bouquet of commodities, including potash, gold and steel. Which share is ahead?
time to read: 4 minutes by Carsten Mainitz
"[...] 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 - Potash prices rise
The stock exchange marketplace thrives on diversity. And this is necessary because only when different investment decisions come together does trading take place. That opinions on a share can diverge widely in the eyes of securities experts can be seen well in the K+S share. The analysts of the venerable Berenberg continue to rate the stock as "Sell" and have already raised the price target significantly from EUR 4.70 to EUR 6.80. The Baader Bank analysts take a different view of the stock and maintain its "Buy" vote with a price target of EUR 11. What is right? Since the share price is somewhere in the middle at a good EUR 8, which currently values the Group at EUR 1.6 billion, let's say "undecided."
The interesting thing about the different valuations is the basis on which they were made, i.e. the reasoning. Theoretically, every investor has the same set of tools to fall back on. These tools are the likes of published information (news, financial reports, presentations, interviews, etc.) of the company and its competitors. It is also important to keep an eye on relevant industry developments and the "big picture." The analysis of business figures and the balance sheet ("number crunching") are also important components. Depending on the weighting or the subjective probability of "arguments" or "developments," the experts, supported by a valuation model, arrive at different assessments.
Concerning the potash producer's share, the following arguments are currently weighted: high debt, investigations by BaFin, growth and industry situation. In our opinion, the most current and most important point is the industry's price trend, to which the Baader analysts also refer. Belaruskali, one of the world's largest potash producers based in Belarus, published at the beginning of April that it had agreed to higher prices with Indian Potash Limited, India's largest potash importer. The price is now USD 280 per ton. This price trend should continue given the rising demand for fertilizers and boost the K+S share again. Debt is being successively reduced, and the "BaFin issue" should also soon be completely off the table. In recent weeks, Germany's top financial supervisory authority had commissioned a special audit of the K+S balance sheet, as there was evidence that write-downs on parts of the Company were too low.
However, most of this audit matter has already been clarified, with a good outcome for K+S. Uncertainty and skepticism often prepare a rich gift table for bargain hunters and forward-looking investors.
SKRR EXPLORATION - Bargains
"Bargain" - is a good keyword for SKRR Exploration's stock. First, the "big picture" speaks for a medium-term rise in the gold price, which is currently trapped in a sideways range around USD 1,700. Second, the company's valuation, which at a current price of CAD 0.21, only brings CAD 8 million on the stock market balance. Given the potential, which we will discuss in more detail in a moment, this is a great buying opportunity. Recently, the Canadians carried out a mini capital increase in the volume of CAD 75,000 at a price of CAD 0.27 and thus significantly above the market price.
As a gold exploration company, the Company focuses on exploring the Trans-Hudson Corridor in the Canadian province of Saskatchewan, bringing a team with extensive experience in the region. SKRR believes that the Trans-Hudson Corridor is geologically similar to the Abitibi Gold Belt. The Abitibi Gold Belt, which encompasses the Ontario-Quebec border, has historically produced approximately 200 million ounces of gold. The province of Saskatchewan is one of the world's leading mining regions.
SKRR Exploration owns 5 projects in the mentioned area, some of them close to producing mines. The focus is currently on the Irving/Leland project, which covers more than 23,500 hectares and is located less than 10km from the producing Seabee Gold Mine of competitor SKRR Mining. In 2020, a drill program was conducted within the 5,000 hectare Olson zone. The very encouraging results not only confirmed high-grade zones of mineralization but uncovered a new zone of mineralization (Michael's Lake Zone). Drilling will continue throughout 2021. By the end of 2022, the Company intends to publish a so-called resource estimate allowing a more concrete price tag to be attached to the assets' value. SKRR has excellent potential to generate discoveries in the still relatively unexplored area. Further company announcements concerning drilling results will be informative here and very likely provide a catalyst for rising prices.
KLÖCKNER & CO SE - Impressive outperformance!
The steel trader's share is quoted at a high of EUR 11 for the year, an increase of around 38% since the beginning of January and an outperformance of a good 30 percentage points compared to the SDAX benchmark. The prospects remain good. The Company's outlook for the first quarter formulated an operating profit (EBITDA) before special items of EUR 110 to 130 million. The quarterly report will be published on April 29.
The Group is one of the largest producer-independent steel and metal distributors globally and one of the leading steel service center companies. Characteristically, the industry is characterized by strong price fluctuations and intense competition. It is here that the Company's strength lies, as it is digitizing processes and the supply and service chain, thus ensuring greater transparency and consequently cost savings.
The Group has set itself to continuously digitize its supply and service chain and develop its independent industrial platform XOM Materials into the leading vertical platform for the steel and metal industry. By 2022, 60% of sales are to be generated digitally and an additional EUR 100 million is to be saved annually. This digital business model's potential and the resulting profit opportunities are so far insufficiently reflected in the share price. Anyone looking for an outperformer in the SDAX should buy the stock.