June 13th, 2022 | 11:56 CEST
No bear market - Saturn Oil + Gas, BYD and Rheinmetall with new momentum
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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
Saturn Oil & Gas - Rally without end
Since the outbreak of the Corona pandemic in April 2020, the oil price has only known one direction: north. While WTI futures were trading in negative territory then, black gold has exploded to over USD 120 per barrel. The US investment bank Goldman Sachs does not believe that the end of the line has been reached here. Strategist Damien Courvalin assumes further rising quotations over the summer. "Oil supply continues to respond quite inelastically to higher prices, as production shifts from the core OPEC countries and those exempt from the measures essentially balance each other out. On the demand side, the negative global growth impulse remains insufficient to rebalance inventories at current prices. As a result, we believe oil prices will need to rise further to normalize unsustainably low levels of global oil inventories, as well as OPEC and refinery reserve capacity," the expert said. According to Courvalin's estimates, Brent prices would therefore need to move to an average of USD 135 per barrel in the second half of this year and the first half of next year in 2023 for inventories to normalize by the end of 2023. As a result, the target price for Brent for the third quarter has been raised from USD 125 to USD 140.
Saturn Oil & Gas has been following the trend to perfection since June last year. At that time, the relatively insignificant oil producer announced the acquisition of light oil deposits in the Oxbow area in southeastern Saskatchewan, which allowed the Company to increase production tenfold to 7,400 barrels per day in one fell swoop. The goal of becoming a leading publicly traded light oil producer and growing by acquiring and developing undervalued, low-risk projects was issued even then.
With another acquisition, the Canadians are now finally entering a new league and, with the size they have achieved, should become attractive to larger institutional investors. By acquiring synergistic assets in the Viking area in west-central Saskatchewan for approximately CAD 260 million, Saturn Oil & Gas is increasing its daily production capacity by over 50% to around 11,400 barrels of oil equivalent (boe) at full capacity.
On the other hand, there are considerable synergy effects on the cost side. Royalties are expected to fall from 15% to 12%, and operating expenses per boe are also expected to drop by around 16%. Management expects to maintain Viking's production at a level of approximately 4,500 boe/d with 35 to 40 wells drilled per year, which would equate to an increase in free cash flow of over CAD 85 million. Last week, the completion of a CAD 75 million bought deal offering and a planned CAD 3 million non-brokered offering have now been announced. During the transaction, the Saturn Oil & Gas share price fell once again from CAD 3.20 to around CAD 2.70. Existing shareholders, in particular, are likely to have been disgruntled due to the high dilution. In the long term, this acquisition makes great sense from a strategic point of view. Thus, despite the oil hype, attractive entry opportunities are likely to arise once again.
Rheinmetall - Continuous news flow
While the MDAX, which includes the integrated technology group with its roughly 25,000 employees worldwide, lost 19.35% since the beginning of the year, Rheinmetall gained more than 158.23%. Naturally, the Düsseldorf-based company, which in addition to its activities as an automotive supplier is above all Germany's most important armaments group, benefited from the outbreak of the Ukraine war. With the agreement to allocate a special fund of EUR 100 billion for the German Armed Forces, the favourite supplier is benefiting like no other. In addition, the order books of other NATO states and partner countries have also been filled to the brim. As a result of the booming defence business, the annual forecasts for 2022 continue to point to growth. Annual sales in the Rheinmetall Group are expected to grow from 15% to 20% in the current fiscal year. In 2021, sales would amount to EUR 5.66 billion.
This growth forecast is calculated on the assumption that the German government's plans regarding possible procurements from the defense budget for 2022 and from the special assets to be created for the German Armed Forces materialize as announced. The operating profit margin is then expected to climb again to 11.0% after 10.5% in the previous fiscal year. While the valuations for the Rheinmetall share already look ambitious after the price doubling, various analyst firms continue to be bullish, according to www.finanzen.net. Last May, for instance, seven analysts gave their verdict, with five trending toward "buy" and two toward "hold". In addition to Berenberg Bank, with a target price of EUR 240.00, the major Swiss bank UBS, with a target of EUR 251.00, is particularly optimistic.
BYD - Phenomenal development
Both fundamentally and from a chart perspective, the electric mobility group continues to develop extremely positively. While even the US rival and top dog Tesla has to accept price losses of close to 50%, the Chinese market leader hurries from high to high. Only at the end of the last trading session a new all-time high at EUR 38.12 was cracked with the break of resistance at EUR 36.70. Invested investors tighten the stop to benefit from the further developments.
Fundamentally, new delivery records could be reported for May. BYD already announced at the beginning of the new fiscal year that it wanted to focus purely on electric and hybrid models, which is already clearly reflected. In the merry month, deliveries increased by 148% to 114,943 vehicles compared to the same period last year. Between January and May 2022, a total of 512,363 vehicles were sold, representing a growth of around 162% compared to the same period last year.
From an operational point of view, the rumor that US rival Tesla will be supplied with the blade technology batteries is also driving the share price up. Concerning securing lithium capacities for the development of the in-house battery technology, BYD is also investing together with the Chinese company Citic Sec in the China-based company Chongqing Zhongrun Chemical Co., which was founded in 2016 and is a manufacturer of lithium battery solvents.
BYD reported further brilliant figures for May and marches undeterred from high to high. Rheinmetall is also running against the weak overall market, supported by full-order books. At Saturn Oil & Gas, the signs continue to point to growth.
Conflict of interest
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