Rheinmetall and Saturn Oil + Gas are making money - What is next for Volkswagen?

Rheinmetall - Full order books

The Ukraine conflict has led to a remarkable upswing at Rheinmetall. The Düsseldorf-based company is now a key partner of Ukraine and a stock market darling. Rheinmetall's share price has more than quadrupled since the outbreak of the war. The Company is one of Ukraine's most important arms manufacturers and has greatly increased its production of tanks and ammunition. By June 2024, over 100 Marder 1A3 infantry fighting vehicles had been delivered to Ukraine. The once-criticized defense company has undergone an image transformation and is currently creating many jobs.

This is due to strong growth. Revenue increased by 49.2% to EUR 2.2 billion in the second quarter, while profit increased by 110.1% to EUR 270 million. This success is due to the high demand for defense equipment, which is further intensified by the war in Ukraine, the tensions in the Middle East, and the conflict between China and Taiwan. Rheinmetall has a huge pipeline of orders amounting to over EUR 48 billion. The Company is investing in its production capacities and making strategic acquisitions to manage this growth.

In mid-August, German defense contractor Rheinmetall announced that it was acquiring US vehicle specialist Loc Performance to strengthen its position in the world's largest defense market and expand its presence in military land vehicles. The Company will continue to benefit from increased defense spending in the coming years. Since the quarterly figures, there have been 6 "Buy" recommendations for the share with price targets between EUR 600 and EUR 680. The share is currently trading at EUR 504.60.

Saturn Oil & Gas - Setting the course for the future

Saturn Oil & Gas Inc. completed an important financing round on June 5. The Company successfully placed second lien notes with an interest rate of 9.625% and a total volume of USD 650 million. These notes, which mature in 2029, are secured by second liens on the Company's assets and were used to repay the old high-cost loan with interest rates of more than 16%. In addition, the proceeds were used to complete the strategic acquisition of oil and gas concessions in Saskatchewan, and the Company is currently producing over 38,000 barrels of oil equivalent (boe) per day. These moves strengthen Saturn's position as a growing energy producer.

This is also reflected in the oil producer's latest financial data for Q2 2024, which shows a solid upward trend. Crude oil production increased by a remarkable 50% compared to the previous year, which led to a jump in revenue to CAD 208.9 million. Of particular note is the adjusted EBITDA, which once again set a new record of CAD 106 million. These strong operating results underscore Saturn's ability to increase its production capacity while reducing capital costs efficiently. Increased production and optimized cost efficiencies position the Company as a potential leader in the Canadian energy sector. Earnings of CAD 0.51 per diluted share show how well the Company is doing.

Shareholders are also set to benefit from this. On August 23, 2024, Saturn received approval from the Toronto Stock Exchange for a substantial share buyback program. Over a period of one year, the Company plans to repurchase up to 10% of its public free float. By buying back its shares, Saturn aims to increase its market capitalization and return capital to shareholders. This strategic initiative increases the attractiveness of Saturn shares for investors and strengthens confidence in the Company's long-term growth story. This is also reflected in the share price, which at CAD 2.54 remains above the price from before the share buyback program, despite a significant drop in oil prices recently.

Volkswagen - Problems intensify

The Volkswagen Group is in a serious crisis, as Group CEO Oliver Blume aptly describes. The European market is weakening, especially for electric vehicles, and at the same time, Asian competitors are aggressively entering the market. This combination has led to a significant decline in sales figures. Further burdens are internal difficulties, particularly in the development of new software. The software subsidiary Cariad is falling short of expectations, which is making cooperation between Audi and Porsche even more difficult. These numerous challenges have placed the Company in a precarious situation, necessitating a rethink and swift action.

To tackle the economic problems, Volkswagen has initiated a series of cost-cutting measures, including the potential closure of production sites in Germany and the removal of job guarantees. These announcements have led to considerable tension with the unions. The management is also planning to focus more on strategic investments, such as the investment in the US electric vehicle manufacturer Rivian. This is intended to remedy technical deficits and open up new market opportunities. Another focus is on improving internal software development in order to become more competitive and increase efficiency.

Despite the current difficulties, there is confidence within the Group that the situation can be stabilized. Volkswagen is planning to reorganize its brand structure and expand strategic partnerships. In the long term, the development of new markets and the introduction of innovative technologies could pave the way for sustainable growth. In the short term, however, overcoming internal and external challenges remains a priority. For investors, this means a period of uncertainty but also of potential opportunities, especially if the restructuring measures are successfully implemented. But whether the dividend will continue to be so generous remains to be seen. The share recently marked a new low for the year and currently stands at EUR 92.50.

Rheinmetall reports strong financial figures, driven by increased demand for defense equipment. Saturn Oil & Gas has set the course for the future thanks to strategic financing and investment decisions that have led to increased production and efficiency. In contrast, Volkswagen faces significant challenges, including weak market performance in electric vehicles and internal difficulties. The Company is taking cost-cutting and restructuring measures to counteract these problems.