Royal Helium, Fresenius, BASF: Chemical and Healthcare industry - Where is the next investment opportunity?

Royal Helium: Pioneer in the market for a scarce resource with great growth potential

As a gas, helium has much more to offer than being filled into balloons at parties and celebrations. To date, it has been used increasingly in the healthcare industry, whether for cooling donor organs or in magnetic resonance imaging (MRI) scanners, whose highly conductive coils can develop their full effect with liquid helium at -269°C. The demand for helium has risen continuously in recent years. Nevertheless, the available resources are extremely limited.

Helium is irreplaceable in many technical applications. These include semiconductor and microchip manufacturing, the production of fibre optic cables, and the aerospace sector, including defense technologies. Large data centres of platform providers such as Amazon, Meta and Alibaba require cooling units with constant cooling. Reason enough for investors to take a closer look at this market: Royal Helium is Canada's first publicly listed helium production company. With over 1,000,000 hectares of helium licenses and leases in southern Saskatchewan and southeastern Alberta, the Company is also one of Canada's largest helium license holders.

In the past, the price of helium in the US was controlled by government auctions from BLM deposits that have since been decommissioned. This system served as a means of regulating supply for the global helium market and covered up to 40% of the global helium supply. With the discontinuation of the supply management system in the US from 2018, a price discovery mechanism process began in the helium market. Global supply and demand forces have led to significant price increases, reflecting a true market price discovery.

The management team of Royal Helium is confident these price fluctuations will stabilize in the coming years. However, the new minimum prices are estimated not to fall below USD 400 to 500 per thousand cubic feet (mcf) - assuming global projects can be brought into operation. Royal Helium has, therefore, concluded long-term fixed-price contracts for three years at an average price of USD 538/mcf.

The traditional approach in the helium market involves small, profitable regional projects that are generally dependent on the economics of natural gas to drive exploration. Processing relies on technology from large industrial gas companies to purify the helium. The purified helium is then sold under long-term contracts to industrial gas companies, which in turn sell it to end users. By-product gases are often simply vented into the atmosphere without further use.

Royal Helium's business model takes a more comprehensive approach, allowing shareholders to participate directly in value creation. The strategy involves large resource deposits combined with smaller, profitable and regional projects. The difference from the traditional approach is that these projects are independent of the economic conditions of the natural gas. That is because Royal Helium owns and operates helium processing systems and the associated infrastructure to sell the purified helium directly to end users. Therefore, there is less dependence on service providers. In addition, by-product gases such as methane for energy generation, CO₂, nitrogen and condensate are captured and utilized to ensure comprehensive and sustainable use of resources. The approach is more sustainable, profitable and scalable.

The helium market is expected to grow at a compound annual growth rate of 5.3% until 2030. Helium is produced in the natural environment through radioactive decay, where it remains trapped in reserves as natural gas.

Fresenius: No dividend, but growth through radical fasting cure

Rumors of demise are greatly exaggerated, and this holds true for the medical technology and healthcare company Fresenius. CEO Michael Sen has steered Fresenius back on track with his radical restructuring of the Company. In the 2023 financial year, drastic measures were taken to simplify entrenched structures and strengthen financial performance. The healthcare group's adjusted operating profit amounted to EUR 2.26 billion, an increase of 3% compared to the previous year. In the fourth quarter, earnings of EUR 634 million significantly exceeded analysts' expectations. Fresenius is an example of a corporation that incorporates helium into its daily operations.

Fresenius has faced challenges in recent years. The pandemic led to numerous canceled operations and reduced demand for certain drugs. The dialysis subsidiary FMC, in particular, recorded an increase in patient deaths. In addition, a failed takeover bid weighed on the Group and led to an increase in debt. Since taking office in October 2022, CEO Michael Sen has initiated a comprehensive restructuring of the Company and is now systematically continuing this process.

Last year, Sen sold numerous peripheral businesses, such as the fertility clinic chain Eugin, in order to focus on the pharmaceuticals division Kabi and the clinic chain Helios. FMC and the struggling services division Vamed are now only managed as financial investments. Shareholders will have to forego a dividend for the time being, as the Company intends to use government subsidies for energy costs at Helios hospitals to reduce debt.

For the current year, CEO Sen is aiming for faster earnings growth, with a targeted increase in operating earnings of 4 to 8% (compared to 2% in 2023). However, the Company's top management reaffirms its long-term goal of increasing the dividend annually or at least maintaining it at the previous year's level.

BASF CEO fights for European deregulation for site competitiveness

Leading European companies, such as BASF, are pushing for deregulation and new subsidies to finance the green transition. Under the leadership of BASF CEO Martin Brudermüller, a meeting was held in Antwerp at which the 'Antwerp Declaration' was adopted. Brudermüller is also President of the European Chemical Industry Council Cefic. **The association is calling for a new industrial agenda to maintain Europe's industrial competitiveness and meet the challenges in the basic materials industry. As Ursula von der Leyen advances the so-called 'Green Deal,' the EU economy, in the eyes of many, is being knowingly pushed towards the abyss.

The demands include deregulation of existing laws, simplification of state aid and the creation of a fund for clean technologies, which would also subsidize operational costs.

"The basic industries in Europe are facing historic challenges: Demand is falling, investment on the continent is stagnating, production is in sharp decline, and sites are under threat. We want to drive forward the transformation of our companies. To do this, we urgently need decisive measures to create the conditions for a stronger business environment in Europe. The 'Antwerp Declaration' outlines a way forward. By putting the European Industrial Plan at the top of Europe's strategic agenda, the EU would pave the way for a resilient, competitive and sustainable Europe. This is the only way we can show the rest of the world that the Green Deal works for everyone," explains Brudermüller.

The declaration signatories call for Europe to become a global leader in the provision of abundant and affordable low-carbon energy through strategic partnerships and robust infrastructure. In doing so, the participants emphasize the need to ensure self-sufficiency in raw materials, promote demand for sustainable products and foster innovation.

However, experts are skeptical as to whether these demands can be implemented, as they would require significant funding from the EU. It remains to be seen whether the EU Commission, under the leadership of Ursula von der Leyen, will be able to put together an overall package to further develop the Green Deal and strengthen the industrial agenda.

Europe is in transition. Industries like BASF find themselves in the wreckage of politics that, with a focus on climate, is dragging down the competitiveness of European industries. BASF CEO Brudermüller is calling for deregulation and, at the same time, more subsidies from the taxpayer. All demands could take several years on a timeline. CEO Michael Sen at Fresenius is moving much faster. With his radical program to restructure the medical technology and healthcare group, his measures are equivalent to a curative fast. Renunciation leads to recovery. This time, shareholders will have to forego the dividend. However, the money 'saved' in this way will be used for further restructuring. The global MedTech market remains on the upswing, with a CAGR of 6%. Royal Helium is making an innovative entry into the traditional helium market with its business concept. The rare gas is classified as a critical raw material and is enjoying growing popularity. In addition to well-known applications in medical technology, its excellent cooling properties are also used in semiconductors and server farms. The world is becoming more digital, and the demand for helium is increasing. Savvy investors are looking ahead to see where there is an exciting opportunity to enter the market.