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July 6th, 2022 | 11:58 CEST

Rheinmetall and Hensoldt stumble, good opportunities in XPhyto and Deutsche Telekom

  • Defense
  • Biotechnology
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As a result of the shockingly weak economic data from the eurozone, the euro fell to its lowest level in almost 20 years with an exchange rate of 1.028 against the US dollar and is currently not far from parity. This crash was followed by European equities, with the DAX recording a new low for the year. Even last week's high flyers, defense stocks, were hit hard with double-digit daily losses. Despite the current correction, there are attractive long-term, anti-cyclical entry opportunities in many sectors at current levels.

time to read: 5 minutes | Author: Stefan Feulner

Table of contents:

    Rheinmetall and Hensoldt with expected correction

    Several times we had pointed out the chance of reaching a new all-time high, but we also predicted that, despite the excellent order situation, follow-up buying would probably fail to materialize, and the stock could drift into a major correction. As explained in a detailed in the update on Rheinmetall, the relative strength of defense stocks has weakened significantly recently. Thus, both the relative strength index RSI and the trend-following indicator sent their first sell signals at the end of May. In chart terms, the March high at EUR 162.95 was identified as the first target.

    In the long term, given the ambitious valuation of the Rheinmetall share, it would not be improbable that the huge upward gap, which was torn when the German government announced a special fund of EUR 100 billion, will be closed again. The gap is at EUR 107.40, (still) far from the current level.

    Despite the daily loss of more than 12% at times, the news situation remains positive. The Düsseldorf-based company received an order for air defense systems with a volume of around EUR 65 million. The deliveries also include ammunition and spare parts and, according to Rheinmetall, are to be completed in 2024. The systems ordered by an international customer are Oerlikon Skyguard 3 with twin GDF009 cannons.

    The second German defense group, Hensoldt, also fell by almost double digits. The chart of the Taufkirchen-based Company, which emerged in 2017 from former Airbus Defence and Space business units for sensor technology in the areas of defense, security, aerospace and aviation, is even more clouded than that of Rheinmetall. The all-time high of EUR 30.25 reached in March has not been reached again, and the share price has reached a level of EUR 24.85. The indicator situation is negative. A closing of the upward price gap would occur at EUR 15.45.

    XPhyto - Attempting to bottom out

    Unlike the stock market stars of the past few weeks, namely defense stocks, biotechnology companies had already been correcting sharply for months. The NASDAQ Biotech Index, for example, has lost about 40% since November of last year. The decline has been much greater for smaller, promising early-stage companies such as bioscience accelerator XPhyto Therapeutics, which focuses on next-generation drug formulations, diagnostics and new active pharmaceutical ingredients. XPhyto shares, for example, have lost about 85% of their value since the high in February of last year. The Company has research and development sites in North America and Germany. It focuses on a diversified approach that includes precision transdermal and orally dissolvable drug formulations, rapid and cost-effective testing for infectious diseases, and standardization of new pharmaceutical agents for neurological applications, including psychedelic compounds and cannabinoids.

    Operationally, the business areas are represented by the two wholly-owned subsidiaries, Vektor Pharma, 3a-diagnostics and XPhyto Laboratories. Following the approval of a PCR rapid test method in December 2021, XPhyto had, in the meantime, strongly concentrated its sales activities in view of the market potential in this segment. However, success in this business segment failed to materialize for the time being but could lead to higher sales in a possible next wave in the current year.

    In contrast, the Canadians' other pipeline is interesting and could lead to major surprises and thus rising share prices. Current research is in the areas of transdermal and orally dissolvable drug formulations. Most recently, results were reported from a human bioavailability study conducted in Europe for the rotigotine TDS product. The rotigotine patch is based on the TDS platform technology developed by the German subsidiary Vektor Pharma. In this context, the market potential for transdermal skin patches is enormous. While the volume in 2020 was already USD 6.5 billion, this is expected to rise to around USD 20 billion by 2028.

    On the personnel side, XPhyto made significant quality gains by hiring Dr Florian A. Sahr as Head of Project Management for Europe. Dr Sahr has many years of experience in drug development, including transdermal and orally dissolvable delivery systems, and has held positions including Senior Scientist and Head of Manufacturing at Gen-Plus GmbH & Co. KG in Munich. Here he developed TDS and ODF drug formulations and transferred these new formulations and technologies to production systems and equipment. Given the significant share price loss in recent months and the promising platform, XPhyto is a speculative opportunity for a substantial rebound.

    Deutsche Telekom - Holding up well in a weak overall market

    In contrast to the hyped defense stocks, the Deutsche Telekom share is holding its own. With a minus of around 1%, the loss compared to the overall market is limited, but the chart performance must be watched even more closely at present. Now that the Bonn-based Company has reached a new high for the year of EUR 19.39, it needs to make a sustained leap above the EUR 20.84 mark relatively quickly. That would result in a new twenty-year high and generate an enormously strong buy signal. If, on the other hand, the breakout does not succeed, this would mean a setback potential to the striking support area at EUR 17.80.

    The planned sale of the radio tower division has had a positive impact on the development of the T-Share for weeks. As reported by Bloomberg, citing people familiar with the matter, a consortium led by the financial investor KKR has been in pole position to date. According to insiders, the radio tower division could be valued at around USD 20 billion in the deal. However, there was no comment from the parties concerned.

    US bank JPMorgan reiterated its "overweight" rating on Deutsche Telekom with a price target of EUR 28.50 following the report. Hamburg-based Berenberg Bank also continues to see the T-Share as a buy candidate with a price target of EUR 27.

    The latest data from the eurozone is causing investors concern. The euro plunged to its lowest level in almost 20 years, and the DAX also marked a new annual low. Highly valued defense stocks deflate, while the T-Share holds its own after buy recommendations, XPhyto is to be observed in the long term.

    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Stefan Feulner

    The native Franconian has more than 20 years of stock exchange experience and a broadly diversified network.
    He is passionate about analyzing a wide variety of business models and investigating new trends.

    About the author

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