January 18th, 2024 | 08:30 CET
Morphosys on the verge of a short squeeze? Evotec share drops like a stone! Almonty Industries is exciting!
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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
Almonty Industries: Investors recognize opportunity
We had already pointed out in December that the stock of Almonty Industries could see a breakthrough in 2024. And the start of the year has been successful. In a relatively weak environment overall, the tungsten producer's shares have already gained over 10% this year and are trading at CAD 0.62. The Canadian raw materials company with activities in Spain, Portugal and South Korea thus appears to have bottomed out and is now on an upward trend. There is a resistance zone between CAD 0.60 and CAD 0.67. If the breakout succeeds, it will be really exciting, as the share was already at CAD 0.86 at the beginning of 2023 and above CAD 1 in 2022. The analysts at the German Sphene Capital believe that the Almonty Industries share price could even reach CAD 1.69.
The rise in stock price indicates that the Almonty story is gaining momentum. The tungsten producer is likely facing a pivotal year. In 2023, the Los Santos Mine in Spain underwent maintenance and was back in operation by the end of the year. Sphene analysts believe the mine will generate annual sales of over CAD 20 million. Almonty is currently working on expanding the Panasqueira mine in Portugal, aiming to double the annual tungsten oxide production of the Company's current cash cow and extend its service life. And then, of course, there is the Sangdong project. The mine in South Korea is to be commissioned this year, potentially becoming a game changer and positioning Almonty as a leading global producer of the critical metal tungsten. The development is co-financed by the German KfW. Of the committed loan volume of USD 75.1 million, USD 53.9 million has already been disbursed in several tranches. Thanks to these three cornerstones, analysts at Sphene Capital expect Almonty to be able to increase its turnover and profits to a new league. Sales are expected to more than triple from CAD 28.9 million last year to around CAD 100 million by 2025. In the coming year, Almonty should then be able to generate an after-tax profit of CAD 24.5 million - and the trend will continue upwards. At the current share price, the Company is valued at around CAD 145 million, suggesting that the share may have further room for growth.
Evotec facing share price disaster
Investors are currently abandoning Evotec shares. The milestone payment of USD 25 million by partner Bristol Myers Squibb is being overlooked. Instead, the surprising resignation of the long-standing CEO Werner Lanthaler, in conjunction with insider transactions published very late, is shaking investors' confidence. Numerous purchases and sales by Lanthaler from 2022 were only reported this year, raising concerns as such disclosures are typically expected within a few days. The "Manager-Magazin" adds fuel to the fire with an article titled "How the Evotec CEO Concealed Million-Dollar Deals for Years". According to the article, Lanthaler sold Evotec shares worth EUR 6 million before the partial exit of major shareholder Oetker became known and put the share under pressure. And according to the "Manager-Magazin," this is not the end of the story.
The day before yesterday, the T. Rowe Price International Stock Fund announced that its stake in Evotec had fallen below the 5% threshold. Although the volume sold is limited, it could indicate that more prominent investors are also having doubts about the Company.
The analysts at RBC also see reputational damage. Evotec itself may have published the insider transactions in good time but only received them from Lanthaler far too late. The analysts maintain their neutral assessment even after the share price slid from over EUR 21 to below EUR 14. For them, Evotec is a "Sector Perform" with a target price of EUR 18.60.
Morphosys: Share on the verge of a short squeeze?
Morphosys shares are at their highest level since the end of 2021. On Tuesday alone, it shot up by over 12% to EUR 38. That means the stock has more than doubled since the end of November 2023. However, there are also repeated double-digit price setbacks. Study data on the blood cancer drug pelabresib in November still seems to be fueling speculation. Is this speculation positive or negative? Even Morgan Stanley appears to be in two minds. Although the analysts see a sales potential of over USD 1 billion, they downgraded the share from "Overweight" to "Equal Weight". Short sellers are likely also contributing to the price fluctuations. The biotech company is popular among short sellers. If Morphosys shares continue to show relative strength or there is even positive news on pelabresib, a short squeeze is likely.
The Morphosys share is traditionally not for the faint-hearted. The pipeline is manageable, and thus, the price swings caused by individual reports are high. Its popularity among short sellers is a constant source of excitement. This year will be exciting for Almonty. If the measures discussed for the three mines are implemented as presented and sales and earnings growth is initiated, significantly higher share prices are possible. Although Evotec could see a recovery rally at any time, the loss of confidence should not be underestimated, even if the Company itself is not to blame.
Conflict of interest
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