June 22nd, 2022 | 13:40 CEST
Nordex, Saturn Oil + Gas, Shell - Reality vs Idealism: Long in oil stocks!
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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
Nordex - Share falls like a stone
The shares of the northern German wind turbine manufacturer are clearly suffering. Although the Company should "actually" be one of the beneficiaries of the energy turnaround, the share price speaks a different language. In the last few days, the share has sunk below EUR 9 and has thus fallen by a third from its high in the spring of 2021.
The Group's market capitalization is currently around EUR 1.4 billion. The analyst community bravely sticks to its buy recommendations, even if the price targets have been cut. On average, the experts believe that the shares have an upside potential of 73% over the next 12 months. Purposeful optimism? The last profit achieved by the North Germans was in the 2017 financial year, which stood at just EUR 0.3 million.
The current fiscal year will also be coloured red. The Company has been pointing this out for some time. With the recently published Q1 figures, Nordex has put butter on the fish, which did not go down well with investors. The loss increased by almost EUR 100 million in the first three months to around EUR 151 million. The operating result (EBITDA) before realignment costs was EUR -52 million, compared with EUR +10 million in the previous year. Nordex cited the costs of realigning rotor blade production, lower installation output and increased raw material and logistics costs as reasons for the poor performance.
"The start to 2022 has been difficult and has certainly gone differently than everyone expected," CEO José Luis Blanco commented on the quarterly figures. He added that there were still "significant supply chain disruptions." Nevertheless, the group leader maintained his medium-term forecast with an operating margin of 8%. For 2022, the wind turbine manufacturer assumes -4 to 0% for this key figure. Given the very weak start to the year, investors would be better off looking at the lower end of the target ranges. Even if a small profit could be generated operationally in the next fiscal year, Nordex will not post a profit until 2024 at the earliest - this is what the analyst consensus suggests.
Thus, there are currently few aspects on the horizon as to why the stock should end its downward trend soon. The challenging framework conditions were recently joined by homemade problems. Due to a cyber security incident, the Group could not publish its figures on time and, as a result, has to leave the SDAX.
Saturn Oil & Gas - A completely different league
Under the leadership of CEO John Jeffrey, the Canadians have achieved extremely impressive growth over the past two years. The goal of becoming a leading publicly traded light oil producer and growing by acquiring and developing undervalued, low-risk projects has now been achieved with the latest acquisition, having already increased production by a factor of 20 with the Viking Assets acquisition last year.
Saturn announced plans to now acquire additional assets in the Viking area of west-central Saskatchewan for approximately CAD 260 million. This will increase production per day at full capacity by more than half to around 11,400 boe/d. In addition, there will be synergy effects, which will reduce costs.
To finance the transaction, the Company has already announced the closing of a CAD 75 million bought deal and a planned placement without broker participation of CAD 3 million. The placement price per share is CAD 2.75. In addition, buyers will receive one warrant per two shares with a subscription price of CAD 3.20 and a one-year term.
Although the stock reacted negatively to the large pending dilution in the short term - the deal is expected to go through in early July - the acquisition makes a lot of sense from a strategic perspective. The big picture with high oil and gas prices and a resulting significant profitability is right. The analysts at GBC believe that the shares have the potential to multiply. The experts at researchanalyst.com also rate the stock as offering good opportunities.
Shell - Favorite among the oil multinationals
The recent slide in oil prices has also dragged down the share prices of oil multinationals such as Shell. Meanwhile, the shares of the British company are rising again, also spurred by positive analyst comments. RBS expert John Musk recently formulated a price target of just under EUR 35 for the stock, corresponding to an upside potential of around 40%. Moreover, according to Musk's rating, Shell is one of the favourites within the sector.
High commodity prices boost profits in the sector and thus free cash flows. According to analyst estimates, the P/E ratio in this and the next fiscal year is 5 for Shell, and the P/B ratio will drop significantly from the current 1 in the next few years. The dividend yield is expected to rise above 4% in the future.
In the short and medium-term, there is no way around established energy sources such as oil, gas and coal. Security of supply trumps dogma. Analysts thus recommend oil stocks such as Shell and Saturn for good reason. In the case of the Canadians, investors have the opportunity to profit from an upcoming revaluation. Nordex is an example of how not all companies in the "green energy" sector manage to operate profitably. Watching is better than investing here.
Conflict of interest
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