February 5th, 2024 | 07:15 CET
Nvidia, Saturn Oil + Gas, PayPal - Money printing machines for the portfolio
Table of contents:
"[...] The Oxbow Asset now delivers a substantial free cash flow stream to internally fund our impactful drilling and workover programs. [...]" John Jeffrey, CEO, Saturn Oil + Gas Inc.
Nvidia - The hype never ends
The ongoing hype surrounding Artificial Intelligence (AI) was triggered by ChatGPT and has created unprecedented momentum. From the automotive industry to medicine, from finance to entertainment, more and more companies are turning to AI to improve their products and services. Chip manufacturer Nvidia is benefiting significantly from the ongoing hype surrounding artificial intelligence. The forecast for 2024 from AMD, Nvidia's competitor, which assumes strong demand for AI chips, shows that this hype is not over yet. It is no coincidence that Nvidia is endeavouring to increase its production capacities.
Both profitability and growth prospects are right for the chip giant. Meta and Amazon rely on chips from Nvidia. The tech giants' recent strong figures could also be due to the use of Nvidia AI. At the end of January, it was announced that Singtel and Nvidia are collaborating to build energy-efficient data centers in Singapore and other parts of Southeast Asia to provide Generative AI and other optimized AI services. Customers for this could be both local companies and governments. The Group will present its Q4 figures on February 21.
Due to US export restrictions, the Chinese market cannot currently be adequately served. The Company is therefore working closely with the US government to develop special chips just for the Chinese market. We will see from the quarterly figures how much the restrictions affect the figures. On Friday, the share closed at USD 661.60 on the NASDAQ. Interested investors should wait for a proper pullback before entering the market. The market capitalization currently stands at USD 1.63 trillion, putting it hot on the heels of Amazon as the world's most valuable company.
Saturn Oil & Gas - Rising reserves
Canadian Saturn Oil & Gas is an oil and gas producer focusing on the responsible development of high-quality, light oil-bearing assets. In recent years, the Company has grown strongly through acquisitions and has built up an attractive portfolio of properties in Alberta and Saskatchewan. At the end of December, average production was around 28,000 barrels of oil equivalent (BOE) per day, above the forecast 27,000 BOE. This was due to the largest drilling program in the Company's history. Also, in early January, Saturn announced that its first multilateral Bakken well had an initial 30-day production of 233 BOE per day. This figure was 49% above expectations.
Results for a second Bakken well are pending. Saturn presented its reserves at the end of January. According to the current estimate, these are 145.3 million BOE for Total Proved and Probable reserves, corresponding to an increase of 131% compared to the previous year. The estimate of cash value is CAD 6.72 per share for Proved Developed Producing reserves. If the Probable reserves are added, the value is as high as CAD 16.69. The Company has 879 gross booked drilling locations, 78% of which are in Saskatchewan. This gives a minimum life of 6.2 years for the current producing wells. If the Probable reserves are added, this is 14.8 years.
The Company expects EBITDA of CAD 375 million for 2023. This is offset by around CAD 460 million in debt, which the Company is currently paying off. Compared to its peer group, the Saturn is currently undervalued. This is also the view of analysts, whose price expectations for Saturn's shares are between CAD 4.75 and CAD 5.65 for the next 12 months. More detailed information can be obtained at the 10th International Investment Forum on February 21, where the Company will present itself and give an update. The final figures are to be announced on March 13. The share has been stuck in a sideways phase between CAD 2.16 and CAD 2.48 since mid-November. The current price per share is CAD 2.38.
PayPal - Cost-cutting program to improve margins
During the Corona pandemic, more and more people discovered online shopping. As a result, the numbers at payment provider PayPal grew rapidly. However, much like vaccine manufacturers, the numbers declined after the end of the pandemic. This caused PayPal's share price to plummet, even though the Company was still performing well. One of the reasons for this was that the Group provided its customers with white label solutions, which caused the margin on these transactions to fall from 3.5% to 2.5%. However, this step was understandable, given the increasing competition in the market.
The First Look Day at PayPal took place on January 25. There, the CEO presented the planned innovations that are expected to lead to stronger growth again. These innovations are intended to provide PayPal's customers and their end consumers with a better shopping experience. The checkout should be up to 50% faster, and users will receive smart receipts that contain individual offers or cashback rewards using AI. The Advanced Offers platform allows merchants to offer personalized real-time offers. The PayPal app is being overhauled and will provide customers with cashback offers from major brands. The Venmo platform will be opened up to small businesses.
Whether this will increase transactions and margins remains to be seen. In addition, the Company announced at the end of January that it would be laying off around 9% of its workforce. These cost savings are expected to boost margins. In the last 90 days, 45 analysts have covered the stock, and 23 recommend the share as a "Buy", while 22 recommend the share as a "Hold". The lowest target price is USD 56, and the highest is USD 145. The average target price is USD 75.91, which offers a good 20% upside at the current share price of USD 62.35.
In principle, investing your money in companies that earn money currently seems more lucrative. However, the share price of Nvidia has risen so steeply that you should wait for a proper setback before investing. Saturn Oil & Gas earns well from the sale of oil and gas. As soon as the debt is paid off, the share price should rise significantly. At PayPal, the market is bearish, and share buyback programs, innovations or cost savings** are currently not being rewarded. It was similar with Nvidia a year and a half ago.
Conflict of interest
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